This article appeared in the May 2013 issue of Technology Transfer Tactics. Click here for a free sample issue or click here to subscribe.

Many TTOs struggle to effectively monitor their many licensees for compliance with license terms, progress toward milestones, and adherence to royalty payment terms. Data is increasingly being sought to use for economic development metrics as well, notes Becky Stoughton, MBA, CLP, director of the Office of Technology Commercialization (OTC) at the University of Texas at Dallas (UT-Dallas) in Richardson.

It’s a big task, and some offices have made it much easier by developing reporting templates — including Stoughton’s. Licensee reporting is a task that “really lends itself to a template,” Stoughton says. The UT-Dallas OTC asks licensees to complete both a quarterly license report and an annual commercialization report. (See “Form Template Roundup” for links to all the reporting tools mentioned in this article. )

“We developed the templates because we had a lower compliance rate than we would have liked for licensee reporting,” says Stoughton. “As we tried to understand why that was the case, we learned that there is a perception on the part of some licensees, particularly smaller licensees and start-up companies, that the reporting obligation is more onerous than it really is. So the original impetus for developing the forms was to make it as simple to comply as possible. We wanted to enhance compliance with the reporting obligations under the license by sending the message, ‘We need this information, but look, it’s not that hard.’”

Reporting templates are a valuable resource to track your licensees’ progress in developing a technology, says Nina Potter, manager for Compliance and Intellectual Property in the Industrial Partnerships Office at Lawrence Livermore National Laboratory (LLNL). “We don’t want anyone licensing a technology and then shelving that technology. These forms enable us to keep in touch with all of our licensees and know where they stand related to the due diligence or performance obligations written into each license agreement. For example, they might need to have a working prototype or a completed product ready for sale within a certain amount of time. Our reports enable us to stay on top of that.” (Links to LLNL’s tracking forms are also included in Form Template Roundup.)

Reporting templates also allow TTOs to obtain some uniformity of data, says Stoughton. “Lacking any sort of format structure, we were seeing a very wide variety of report formats. With licensees using our own reporting tool, it is nice to have the data returned in a way that we are familiar with. This allows us to easily make comparisons, both linearly over time with a given company and from company to company at a snapshot point in time. In addition, we can identify gaps in reporting more easily than with an ad-hoc, free-form reporting format.”

Having reporting templates also makes TTO operations more efficient, points out Stoughton. “When we initially execute a license agreement, it’s very simple for us to provide the form rather than answer a lot of ad-hoc questions about what’s required. In addition, an indirect benefit is enhanced communication and congeniality between our office and the licensee.”

Customization is key

Consider the following when implementing reporting templates:

• Alter your templates as necessary for individual licensees. TTO managers shouldn’t anticipate that one particular version of a reporting form will be included in every single license agreement going forward, suggests Stephen J. Susalka, PhD, CLP, associate director for commercialization at Wake Forest Innovations, the commercialization enterprise of Wake Forest Baptist Medical Center in Winston-Salem, NC. Wake Forest Innovations has developed a quarterly report template for licensees. (See link in “Form Template Roundup”.)

“Our quarterly report is a living document — it is just a template to start from,” he explains. “You need to edit that template to accommodate the terms that you have agreed upon. For example, if you don’t have the right to sublicense in a license agreement, make sure that your quarterly report doesn’t say, ‘Please provide your sublicensee’s address,’ because that will cause confusion.”

Similarly, sometimes Wake Forest Innovations doesn’t ask the licensee to state what patent numbers they believe cover the technology. “That can be a double-edged sword, so I don’t always include it depending on the specific agreement,” says Susalka.

In fact, a template should be considered a “jumping-off point,” he recommends. “Use it to think about, ‘What type of information do I want from that particular licensee every three months?’ Getting it exactly right before you sign the license agreement is important because potentially these quarterly reports could last decades.”

• Make forms an appendix in the license. Many license agreements have a reports-and-records section listing the information that the TTO requires the licensee to report quarterly, notes Susalka. “Hopefully, that list is exhaustive. However, in those cases where it isn’t, you might run into trouble later if you ask for additional information. Tailoring the form exactly the way you want it and asking the licensee to complete it every quarter as part of the license agreement helps prevent any disconnect between your expectations and the information the licensee is willing to provide.”

Susalka attaches the quarterly report as an appendix in the license agreement. “Then in the license agreement, I will specifically reference that appendix,” he explains. “For example, the agreement might state that ‘we expect quarterly reports no later than 30 days after the end of the calendar quarter in the form of Appendix B.’”

“There are a number of advantages to addressing reporting requirements at the license agreement level,” he states. “First, it helps identify potential issues, such as whether a company is willing to break out its deductions from gross sales. For example, I would like to know what a licensee deducts due to outbound transportation vs. discounts and rebates. That is probably a conversation that you want to have beforehand.”

While everything in a license agreement is negotiable, most licensees are amenable to including reporting requirements, says Susalka. “I haven’t had a lot of trouble getting these appendices incorporated into license agreements. I can only think of a single instance where I have not been able to get this level of detail in a quarterly report. So in my experience, this is not going to be a big sticking point.”

• Mirror the license agreement. Whether or not reporting templates are included as an actual appendix to the license agreement, the templates should “mirror the reporting information that is requested or required under the terms of the license,” stresses Stoughton. “Any reporting form that a TTO develops or adapts needs to do that.”

When an appendix is used, the reporting form in the appendix should change as the negotiations change, adds Susalka. “For example, if your first diligence provision has a date of March 31, 2014, make sure that your diligence provision in your actual license agreement doesn’t say something different. The appendix needs to be re-evaluated before you send out that latest license agreement draft.”

• Incorporate internal and external requirements. Having a template allows TTOs to obtain the same type of information from many different licensees. “Rather than having a number of different quarterly reports come in — all in slightly different formats that might not include exactly the same types of numbers — you can have it all in one fell swoop,” says Susalka. “So your quarterly report should reflect your own internal reporting that you do. That’s useful for tracking purposes.”

In addition, TTOs have external reporting obligations, notes Stoughton. “We’ve designed our forms to gather information that is compiled for various reports. For instance, the AUTM licensing survey asks some questions that pertain to start-ups and funding. The reporting forms make it easier to compile those types of statistics across the full spectrum of our licensees as well.”

Simple is best

• Don’t overcomplicate. Wake Forest Innovations uses one template for both standard licensees and start-ups, says Susalka. “We try to use the same basic form in virtually every license. If it is a start-up company, there might be additional provisions that need to be reflected in our quarterly report, so we will tweak the form as needed. That allows us to maintain standardization within certain bounds.”

It’s also important to keep the form itself as simple as possible, suggests Stoughton. “On our form, you’ll notice that there is concise wording, and in many cases we ask for a minimum of information. Keeping forms as easy to complete as possible encourages compliance.”

For example, the Wake Forest Innovations quarterly report template has three basic sections:

1. Financial reporting. This section includes such information as the milestone payments, net sales, and minimum annual royalties.

2. Commercialization reporting. “This section deals with the actual diligence provisions used to determine the commercialization stage of the technology,” says Susalka. For better tracking, Susalka often lists more commercialization milestones in the quarterly report appendix than the number of diligence milestones in the actual license agreement. “For example, I may have diligence milestones for initiation of phase I and III clinical trials, but I often put additional development steps in the quarterly reports (like initiation of a phase II clinical trial, or completion of each clinical trial, or other important steps),” he explains. “In those cases, the ‘Milestone Date’ box is grayed out for these additional milestones in the quarterly report and is not a diligence breach, but allows me to better track the development stage.”

In this section, Susalka also includes a free-form box where licensees report “any material events” related to commercialization reporting. “Some TTOs might want to consider including a greater level of detail, such as the anticipated date of the first commercial sale, updated quarterly,” he notes.

3. Sublicensee information. “In license agreements in which we provide the right to sublicense those rights to others, we like to be very sure that we know who that sublicensee is, the date that sublicense was executed, and which rights are sublicensed, as well as obtaining a copy of that sublicense,” says Susalka.

• Be flexible. While data reporting requirements are part of each license agreement, the UT-Dallas OTC doesn’t mandate that licensees use its particular forms, stresses Stoughton. “They are simply offered as an aid. Larger companies tend to have their own reporting procedures, especially with respect to royalty reporting. We’re happy to have that. However, the forms can be very helpful for smaller companies that typically don’t have a format for crunching those numbers.”

The timing of reports also might need to be adjusted. LLNL requires licensees to complete royalty reports on either a quarterly or semiannual basis, says Lori Straley, resource analyst in the Industrial Partnerships Office at LLNL. “That is based on how the license has been negotiated. Our standard is quarterly, but some licensees have difficulty reporting quarterly, so they negotiate a semiannual royalty report.”

Which forms are right for you?

• Try different forms for different needs. LLNL has developed a suite for forms “for any commercial licensee of our products whose terms and conditions within the license agreement indicate they have the associated reporting requirements,” says Potter. The lab usually requires licensees to report their progress semiannually before their first commercial sale, she notes.

Licensees transition to another form to report that first commercial sale. “So if the licensee has actually developed a product or provided a service that is based on that technology, when did that first occur, where did that occur, and what was sold or leased? That’s the type of basic information we request,” says Potter. Then on an ongoing basis, LLNL licensees complete the royalty reports quarterly or semiannually. (Links to each LLNL form are in “Form Template Roundup.”)

• Use forms to prompt compliance. “On a case-by-case basis, I sometimes use the blank form as a gentle reminder that the licensee owes me a quarterly report,” says Susalka. “Generally, the quarterly report that is included as an appendix in the final license agreement is a pdf file. So if I am a little concerned that I’m not going to get the quarterly report on time, rather than being too aggressive, I send the Word or Excel version with a note that says, ‘I noticed your quarterly report is coming due in 15 days, and I just wanted you to have this for your convenience.’”

The UT-Dallas OTC also sends the reports to licensees “along with a reminder shortly before each report is due,” says Stoughton. “If we don’t get a report from a licensee, we will send the form again as a reminder after the report is due. We sometimes also make them available to the licensees shortly after license execution or as part of finalizing the license, especially if the licensee has any questions about the reporting obligations.”

Reports lead to dialogue

• Bring licensing staff into the loop. Once received, LLNL’s progress and royalty reports are routed “to the business development executive who negotiated the license agreement and is familiar with the terms and conditions and also the technologies,” says Potter. “They look at that report to ensure that their licensee is meeting all of the due diligence requirements. If not, they will initiate a call to the licensee to find out where they are with that technology.”

If a licensee hasn’t met a deliverable, “it requires a certain kind of dialogue,” adds Straley. “If they have met it, there might be a different kind of dialogue: How successful is the product? For example, they might have developed a product yet they are not reporting sales, or we might have a new technology that might be complementary. So the reports are something that the licensing executive could use to open up additional conversations about licensing more technologies.”

Also, specific to the royalty reports, “we will look at those to validate any financial obligations as well,” says Straley. “For example, if that license agreement had a minimum annual payment that was due, has the licensee now crossed that threshold so additional royalties might be due?”

• Consider a database tie-in. While many TTOs that use reporting templates have yet to integrate those forms into their information systems, LLNL has a terms-for-compliance module in its database, says Potter. “We enter all of the different milestones that the licensee has to perform before their first commercial sale, and when we get the progress report in, we can see if they have met those milestones and log in the results. This helps us closely monitor our licensees and track that they are definitely using our technology to develop their product and to get it out into the marketplace.”

When TTOs have milestones set at various points within the license agreement (e.g., a product sale within three years), “you may forget about that specific element within the contract,” points out Potter. “The combination of the reporting tools and the database allows us to manage the unique deliverables that are required — because each contract is going to have variations.”

Contact Susalka at 336-716-3729 or ssusalka@wakehealth.edu; contact Stoughton at 972-468-8575 or rebecca.stoughton@utdallas.edu; contact Potter or Straley via Steve Wampler, senior public information officer, at 925-423-3107 or wampler1@llnl.gov.

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