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Moving software through the tech transfer process requires speed, finesse

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Apps and software are becoming more common in TTO portfolios, but they may require a slight reworking of how you think about IP and guide it to commercialization, experts say.

This type of IP can be handled largely the same way you handle other technology, but there can be some unique aspects to keep in mind, says Daniel E. Sineway, JD, partner in the Technology/IP Group with Morris, Manning & Martin in Atlanta. Speed and rapid reaction to developments are key, he says. TTOs must find a licensee rapidly and in many cases will look to the researcher whose name is on the disclosure. The best recipe is when that researcher has the business acumen to turn the software into a business and get it to market quickly, Sineway says.

At the early stages, universities tend to be a little more discerning about what they patent in this area, he says.

“In many other areas there is not a lot of thought given to that, with people saying let’s file a provisional patent and we’ll assess it later. In the majority of those cases they’ll go ahead with a full patent application later,” he says. “With software, they tend to be a little more critical and not file for some [innovations] because they’re worried about the non-patentable subject matter issues.”

But when a university is confident in the future prospects of a software project, they tend to move more rapidly than with some other technology, Sineway says.

“If you compare software to life sciences or pharma inventions, for example, in those cases there is an intentional strategy to defer the patent process for as long as possible. They often will file PCT applications and at the end of that 30-month period they will file a U.S. national, trying to push out the time window to allow for FDA approvals and similar developments,” he says. “On the software side the development is far more rapid, with things changing at a far quicker pace, and the investment happens more rapidly in response to that. You also have fewer barriers to entry, so there’s no need to delay as you wait for approvals.”

Details needed in applications

Though software needs to move along at a good clip, Sineway cautions universities to take the time for proper provisional patent applications. Too often, he says, applications are not technically specific and focus more on the end result, advantages, or the business side of the project, he says.

“As we’ve seen case law change and become more stringent on software patents over the last seven or eight years, we’ve seen that being specific and giving examples is key. If you get a few years down the path and you don’t have that stuff in there, you’ve shot yourself in the foot with a non-patentable subject matter problem,” Sineway says. “That’s a big mistake for people new to the game, not having that level of detail in there.”

There also is less focus on international protections because many foreign countries are even more adverse to software-related technology patents than the United States, Sineway says. For a pharma invention, for instance, the university will file in many countries, but not necessarily for software.

Even though the process may move more rapidly with software, you’re still typically at the licensing phase before you have any real indication from the patent office as to how the application will be treated, Sineway says.

“So we don’t see a lot of change in the negotiating strength and getting licenses out,” Sineway says. “You still don’t know what will become of it, so you’re still licensing for a pending application. It’s not a lot different in terms of your negotiating leverage.”

Start-ups need industry veteran

As with most technology, spinning software into a start-up requires the help of someone experienced in the market, Sineway says. Even if the licensee is a university researcher with good business sense, it’s still important to bring in a hands-on executive with experience in the industry.

“When you see a start-up is that is managed and run by a professor, it just doesn’t have a lot of oomph, for a lot of reasons,” Sineway says. “Partnering with a key industry person is critical. Perhaps more important than in most technology, software requires getting people from the law firm, accounting, and advisory board perspectives who can help you more rapidly fundraise and address potential legal issues early on. You have a potential for rapid growth, so you want to be positioned well early on.”

A big part of software development is choosing the right horse to bet on, and Sineway says universities sometimes do well by focusing on the researcher. If you have technology that is in a hot area like cybersecurity and you have a researcher who is well known and has some business experience, that can be a good indicator of success, Sineway says.

The university should work toward a start-up with most software, he adds, because most software is only valuable if you have a legitimate business around it, he says.

“Just having the IP and waiting for someone to come do something with it doesn’t work. It’s unlikely to have someone [commercialize] that IP unless there is a start-up coming out of the school or closely affiliated and heavily interested in licensing it,” Sineway says. “It’s just not common for Google and Microsoft to troll university portfolios and say they just have to have that IP. For anything that’s going to have real success, you have to go down the start-up path.”

Quick licensing is key

Royalty rates are essentially the same as with other technology, possibly with some room for lower rates at first but higher upon some liquidity event, Sineway says, because the licensee may be taking a bit more of a gamble on software than with other technology.

Licensing may be more of an issue with software than with some other technology because it can be comparatively easy for someone to take coding from the software and use it without permission or reverse engineer it, Sineway says. The creator of software automatically owns the copyright, and registering the copyright only gives marginal additional protection, so universities often don’t bother to take that step, he says. But they may want to consider it, since trade secret protection for universities is often problematic.

“In the university world [keeping a trade secret] would mean you have nothing to license, other than the code and the work product itself,” he says. “So for university software it’s usually patent or bust. You can drag out the patent process quite a while to have some auspice of protection during the time needed to create the business and move it forward. With software moving so rapidly, sometimes you only need a few years of protection because if you’re the first to market, that’s all that matters and it’s not like a pharma product that’s going to rule the market for the next 20 years.”

Nonetheless, the revenue potential is significant with software, particularly in a hot field like cybersecurity currently. There are fewer opportunities for the blockbuster developments seen in the life sciences, but still great potential, Sineway says.

“You don’t see as much of the big home runs and exits to a pharmaceutical giant, but there are more singles and doubles with $25 million and $50 million exits, and those revenues trickle back to the university,” Sineway says. “There is still potential for some big wins if you’re in an area like cybersecurity that is going to be prevalent for years to come.”

Ohio State launches software “vault”

That potential is leading some universities to use a “software vault” for early stage apps and software, an online platform for making the IP available for commercialization.

The Ohio State University in Columbus has developed The Buckeye Technology Vault (BTV) for online distribution of digital assets, says Cheryl Turnbull, senior director of finance and operations in the technology commercialization office. The vault makes the software accessible through Apple, Amazon, Google, and other portals, as well as directly through a search function on the vault site at https://buckeyevault.com/.

The vault site offers simple agreements and allows anyone the ability to see the apps, offerings and non-exclusive patents the university has available. Some items are completely free and others have a related price. The BTV site has a payment mechanism built in.

“We were looking for a way to license, primarily non-exclusively, our software and make it available to potential users in a format that is very accessible and very easy to use,” Turnbull says.

Vault helps gauge commercial potential

Most of the software in the vault is not ready for immediate commercialization, says Associate Vice President for Technology Transfer Dipanjan Nag, PhD, MBA, CLP, RTTP. The software is made available for testing, which helps the university decide whether to put resources behind it.

“Are we getting five downloads or a thousand downloads? That can help us gauge the potential for this particular technology and how to direct our resources,” he says. “A lot of technology is not ready for prime time, so it would be wrong to direct our time and energy there. This is a way to let the market show us what it wants.”

Downloads and other metrics are tracked, and once a particular software gets traction it can be polished and made more professional, then spun out into a start-up, Turnbull explains. This is the process flow:

(a) Invention received by TCO and recommended for further development;

(b) Software given to the Software Shop for “polishing” for the commercial market;

(c) Refined version placed on the vault for sale to external parties;

(d) If software receives traction, a start-up company is formed and it is removed from the vault. Any liability protection is cancelled when the start-up takes over.

Some software from the vault will have significant downloads but still may not be right for a start-up, Turnbull notes. “There may not be a company to develop there, but it’s going to continue getting a consistent number of downloads. We see that with content a lot where it’s not the basis for a company … so we can license it to a number of people on a non-exclusive basis,” Turnbull says. “It can stay in the vault and we can continue to market it that way. It’s a low-touch, low-cost way to validate licensing technology because we’re getting real-world input and our licensing managers aren’t having to spend hours and hours on this.”

Nag says the vault serves an important purpose in identifying customers. “At the very early stages of technology, there is a distinct disconnect between the product and the market. To cross that chasm you have to know who the customer really is, and the vault is a way to validate who the customer is, whether the customer really wants it or not,” he says. “We find out who is downloading it, how much, and how valuable it is. It’s proof of concept and validating the market.”

Contact Sineway at 404.364.7421 or dsineway@mmmlaw.com; Nag at nag.18@osu.edu; and Turnbull at Turnbull.58@osu.edu.


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