This article appeared in the January 2023 issue of Technology Transfer Tactics. Click here for a free sample issue or click here to subscribe.

A term sheet template for life science licensing deals developed by a group of prominent university tech transfer programs, venture capital firms, and attorneys could help eliminate much of the haggling over routine issues and establish a baseline of what is typical or most commonly found in license agreements.

The template, which addresses life sciences IP but may have utility in other agreements, could be most useful for universities that do not license IP in high volume and are less experienced with negotiating terms. The developers suggest that using the template could cut the time and cost of licensing life sciences IP by as much as 80%.

The consortium of representatives from 14 universities, nine venture capital firms, and three law firms worked on the project for three years. The term sheet template can be downloaded from the AUTM website at https://bit.ly/3Ilxbek.

Dispense with haggling

The template is generating good feedback so far, says Orin Herskowitz, executive director of Columbia Technology Ventures at Columbia University in New York City. He led the project and attributes positive reaction to the template addressing a key frustration among tech transfer leaders and everyone else involved in licensing IP — the drawn-out negotiations that can typically take six to nine months.

“In many ways, this is less about trying to resolve any specific sticking point and more about trying to avoid the theatrics that tend to get performed even when experienced parties are negotiating against each other,” he says. “When you have tech transfer offices that might do 20 or 30 start-ups a year, and a venture firm which might do 20 or 30 start-ups a year, when we get in the room together we all know what the deal will look like in the end.”

Nevertheless, Herskowitz says, everyone expects that the universities will come in high and the venture capitalists will come in low. The dance begins and might go on for nine months.

“It’s just an absolute and total waste of time,” he says. “You could save three to four months off the bat by not having pointless conversations about things that aren’t even worth negotiating, because we all know how they’re going to end.”

Helpful for less experienced

The other big benefit from the term sheet template is for TTOs that are less experienced with life science start-ups than the larger offices that helped develop the model. An institution that does only three start-ups a year probably just has not seen enough deals to know what the norms are, Herskowitz notes. The same is true for a new venture capital firm.

The license template can serve as a baseline, showing the less experienced parties what the bigger or more experienced institutions usually agree to in a license. “Those entities can look at something like this and say ‘this outcome here has been endorsed as a perfectly reasonable deal for most situations,’” he says. “We can spend nine to 12 months yelling at each other or we can just take this and be done in two months.”

Shortening the negotiating time can result in significant cost savings on legal fees, and it frees up personnel to work on additional projects. In the life sciences, however, a shorter time to license can have a more significant impact given what’s at stake, Herskowitz says.

“With therapeutics, a six-month delay in getting funded translates pretty directly to a six-month delay in getting into the clinic, which translates to a six-month delay in getting approvals,” he explains. “That translates to a six-month delay in patients receiving the drug. So this has a real direct impact on patient care.”

Not every detail specified

The template does not specify every point in a license agreement because some factors, such as the royalty rate, may legitimately need to be hashed out in negotiations, Herskowitz says. But the definition of “royalties” or “net sales” shouldn’t change from one license to the next and can be established up front. In addition, some terms will have to be added or changed to comport with university-specific policies and legal requirements.

The developers hope for the template to be used in total, even if certain elements are tweaked here and there, Herskowitz says.

“I don’t actually think it would make sense to take this agreement and say we’re going to use the royalty portion, but not the sublicensing portion,” he says. “There was a year and a half of negotiations that went into this agreement, so it would be counterproductive to treat it as just a starting place.”

Not every party to a licensing deal will be familiar with the term sheet template and not everyone will be willing to use it, Herskowitz acknowledges. There will undoubtedly be times when parties sit down to start a negotiation and someone balks at using the template that their counterpart wants to use.

Having the template available will not eliminate all contentious negotiations, but it can at least give the TTO negotiators confidence that they are acting in good faith, he says. “If you wind up in a situation where the university is willing to use this but their counterpart is not, at least that university can know that they’re not crazy. The university is to some degree then insulated from any accusation that is being unreasonable in the negotiation because this is the market norm that they’re offering,” he asserts. “You often hear things like, ‘that’s not the way this is done at MIT’ or ‘that’s not the way this is done at Stanford’ as a justification for agreeing to a term. And similarly, I think venture capitalists might hear ‘that’s not the way it’s done at Polaris.’”

With the license template you can say, actually it is. “It removes some of that anxiety, because the answer is it’s been called a reasonable deal by Harvard, and Stanford, and MIT, and Columbia, and Yale, and Duke and Johns Hopkins,” Herskowitz says.

Duke plans to use template

Though the template is designed only for therapeutics, it should be useful in streamlining some operations even more broadly at Duke University, says Robin L. Rasor, Duke’s associate vice president for translation and commercialization. She helped develop the template.

Therapeutics are one of the highest value kinds of technology that Duke licenses, she notes, and some parts of the template can be useful with other types of IP as well. “It’s unlikely that it’s going to get rolled out for the majority of the deals we do. However, there are aspects about it that are wonderful because in many cases we spend so much time nitpicking definitions. That’s going to be useful across a broader set of licenses than just drug discovery or gene therapy.”

The tech transfer team at Duke met recently to discuss how they will start implementing some of the definitions in the template. Even in cases where they think their existing definitions are fine, Duke may still adopt some of the template definitions because they expect law firms will see the template and start arguing that those definitions are the accepted norms, Rasor says.

Duke reviews its own template license once a year and makes changes if they have been seeing a lot of pushback on a particular term or more arguing than normal over a definition. The new template may aid in revising some of those terms and definitions when necessary, she says.

No matter how a university decides to use or not use the template, tech transfer leaders should become familiar with it and how it might differ from their usual terms, Rasor advises. Even if you do not adopt the template, the person on the other side of the table might.

“We were in the middle of doing a license right when this was getting rolled out. The law firm, which was not one of the law firms that participated in this, used the new template and told us ‘We don’t like your definition. The new AUTM and VCA definition is this,’” she says. “They picked it up within a week of it coming out. So I think we all have to be prepared.”

May help reputation with investors

The term sheet template could be helpful at universities where the administration believes tech transfer is not working well with investors, notes Karin Immergluck, associate vice provost in the Office of Technology Licensing at Stanford University, who also participated in the project. It also may help with the public perception of how universities negotiate start-up licenses and what constitutes appropriate terms, she says.

“University leadership can criticize tech transfer offices for how they’re working with start-ups or how they’re approaching [negotiations]. There often is a belief that [TTOs] should just take the faculty perspective, or just take the investor perspective. And often they don’t really understand what’s involved in start-up negotiations.”

The fact that universities got together with several law firms and well-known VCs to develop the template should be useful in showing administration what is reasonable and common, she says.

Stanford probably will not adopt the new template in its entirety, Immergluck says, but she is curious to see how many investors and attorneys want to use it.

“I’m certainly using it to help educate new staff, but if an investor comes to us and says they would actually like to use this as a starting point, I think that would be fine,” she says. “I think we’ll probably be going about things kind of like we do, where we customize according to which VC firm we’re working with. I think the investors generally like that customization, but maybe not all.”

Immergluck recommends remaining flexible even if the university adopts the license template in whole or in part. “Despite the fact that we have some heavy hitters stating they think in general this is a reasonable term sheet, there are a lot of VC firms that might not agree to this and who didn’t sign up for it,” she says. “I think a university would be hurting itself if it put this out and said this is it and this is non-negotiable.”

Richard Brandon, JD, associate general counsel with Innovation Partnerships at the University of Michigan in Ann Arbor, was part of the team developing the template and says the experience was illuminating. When parties from different sides of the table discuss these issues outside of a real license negotiation, they can come to a better understanding of each other’s positions, he says.

“When you actually listen to the other side and really try to find a solution, you can actually get somewhere,” he says. “There were differences of opinion, both on substance and on language, and there were some real negotiations, but we were able to solve it because people listened to each other.”

It is not clear yet how Michigan might use the template developed by the consortium, but Brandon says that if the existing Michigan template is revised they might use portions of the new term sheet model.

“We would steal very large portions from this, and we would expect a lot of a lot of small, medium and large universities to steal a lot of language from this as they redo their own templates,” he says.

VC firms embrace template

The venture capital community is excited about the term sheet template, says Galya Blachman, JD, general counsel and chief compliance officer with 5AM Ventures in Boston, MA, one of the VCs participating in the project. She recently was talking with another VC’s general counsel who was having trouble negotiating a license.

“The university was insisting on a specific term and he asked about the model term sheet. I sent the term sheet over and immediately that issue was resolved because they realized that their position wasn’t market,” she recalls. “When we set out to do this project, we thought that the people who would benefit the most would be the venture capital firms who enlightened a lot of nascent technology companies, and also the universities.”

Blachman is also hearing enthusiastic feedback from entrepreneurs who don’t have the wherewithal to hire expensive lawyers to negotiate licenses from scratch.

“There can be a lot of cost savings on lawyers. You get the term sheet, and then you can hand off to a lawyer to save many hours of work and negotiation,” she says. “That’s been a surprising effect of the term sheet.”

More templates coming

Some of the most problematic issues to negotiate are sublicensing, future improvements, and know how, Herskowitz notes. At first the group decided not to not even try to negotiate those because they are so complicated, but in the end they did manage to negotiate them and there are recommendations in the template for all three.

Still, those issues are the fuzziest of all the terms in the template and the developers may adjust them at some point, Herskowitz says.

The group also has received suggestions about other clauses to consider and they are following up on them. The plan is to publish an updated version of the document every three months or so, he says.

The developers also want to create templates for other types of IP. “We started with therapeutics because therapeutics deals have a lot of commonality across them. Next we’ll probably try to tackle climate,” Herskowitz says. “There the underlying technologies are quite different from each other so it may be a little harder to get to the outcome.”

Contact Herskowitz at oh2120@columbia.edu; Rasor at robin.rasor@duke.edu; Immergluck at Karin.Immergluck@stanford.edu; Brandon at 734-763-0614; and Blachman at 415-993-8570.