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Technology Licensing
By Nochebuena R&D, Rogelio Nochebuena
We will analyze the responsibilities that the Technology Transfer Office (TTO) has at different universities, among them being custodian of the Intellectual Property (IP) created by the faculty and students in their premises. In this role, the TTO tries to find suitable users of these technologies and to negotiate the best terms for both parties. In addition, they also do a lot of the work needed to create joint ventures, incubate potential spin-offs and work out the details a sale of IP when it seems to be the best way to unleash value for the university.
In general universities that are successful in this endeavor have several things in common.
They:
Have a portfolio of valuable assets
Have strong desire to negotiate fair terms for a win-win deal that will generate royalties and other fees for the university, while providing value to industry
Want to complete the process expediently and try to establish-long term relationships with industry
Are willing to forgo initial fees for long-term equity in the companies that license their technology
Want to foster innovation and the entrepreneurial spirit among faculty and students
Perceive industry relationships as a vehicle for sponsored research
Increase employment levels, generate wealth for the university, faculty and students, and increase the level of donations from successful entrepreneurs that have used their IP
Last but not least want their technology to positively impact the community in which they reside
We will examine some of the practices that Caltech, USC (University of Southern California) and UCI (University of California at Irvine) use in promoting the commercialization of IP.
Also we will look at a successful private research organization that has been very astute in using public funds to create a portfolio of valuable IP and a number of spin-offs using their technology with the help of venture capital.
The Role of the Technology Transfer Office in Promoting the Use of Intellectual Property
While one of the main charters of universities across the globe is to teach students and develop leaders who will run companies, improve the health of people, etc., these institutions have other responsibilities. This includes expanding the boundaries of knowledge through research and development, as well facilitating the dissemination of knowledge to improve the standard of living of people across the world.
In the process to conducting research, new discoveries having substantial economical impact are often discovered or developed. That Intellectual Property (IP) when properly managed can provide the universities and its inventors with untold benefits.
In order to find an appropriate home to those technologies, most universities have established a Technology Transfer Office, whose responsibility is to assist faculty members and students with the commercialization of IP. Having the right people in this position and promoting an enjoyable environment where entrepreneurship is fostered can make the big difference between having great research that meets the objective of writing very scholarly papers and dissertations, or doing all of the above plus collecting very attractive royalties and establishing valuable collaborations with industry from around the world.
What are the characteristics of universities that have mastered the process of conducting world-class research, while at the same time enjoying the benefits of a steady stream of royalties from technology licensing, joint ventures, spin-offs and equity in companies originating from the research conducted there, and those who do not know how to profit from their discoveries?
It is the objective of this piece to analyze some of the market dynamics and point out best practices that hopefully will allow universities and corporations to use their IP to benefit them and also society in general.
The main responsibility of the Technology Transfer Office (TTO) at any university is to promote and influence the innovation processes there, educate researchers and students on how to commercialize technology for personal benefit and for the good of their alma mater, and to assist industry in finding suitable and economical IP solutions to their problems.
The TTO is also responsible for generating revenue for the university by finding companies or individual that could use the IP to solve a problem. At times the issue is how to let people know that they have IP capable of transforming how things are done, or than can reduce the cost by X%, or that will allow something to happen faster.
Identifying the target audience is one of the virtues that a successful TTO now must have. The TTO needs to be well plugged-in to trade organizations, industry forums, affinity and alumni groups and researchers' networks, as well as effectively use the world web wide and other means of broadcasting the findings of the university.
The TTO has to have among their employees' excellent marketers, very savvy scientists and engineers that can see the obvious and hidden attributes of an IP, and people with a strong background and connections in commercializing IP. These people have to be able to communicate effectively with researchers and decision makers at the same time, they have to have a vision of what could be done, and enjoy the challenges of operating at two different speeds, one where the researchers are always wanting to improve on what they have already, and the other where industry demands a solution to a problem yesterday or at worst today.
Once a company or individual establishes a meaningful relationship with the TTO, and through them with the inventors, the process of technology transfer and adoption begins. What and when the university will allow the licensee is negotiated, and the benefits that will go to the university and the researchers and students are also established in the licensing agreement.
There are other questions to be answered as well. Will the licensee also utilize university facilities and lab space to work on the development of that technology? If so how much will they be charged and is it on an hourly basis or a long-term contract? One of the most important things that both parties need to understand is that IP commercialization is not just granting the licensee the right to use a document; they often need to talk with the inventors to learn how exactly some things are done, so having access to lab notes, computer print outs, simulations, and other information that often times is only recorded in the brain of the investigator or his/her students is a must. Thus communicating effectively with researchers is one of the challenges that industry often encounters as an obstacle to successfully commercializing IP.
Other forms of IP commercialization include the outright sale of the IP, the creation of spin-offs and Joint Ventures. When IP is licensed, the university and industry normally negotiate based on the potential economical value of the IP. For instance if they perceive the IP to have a value in the hundred of millions or more, the terms for exclusivity, royalties, up front fees, and other benefits are different from IP with a lower economic value.
The price of the sale of IP is also a function of perceived economic value in terms of its potential to generate revenue for the buyer.
When the IP is used to setup a Joint Venture, universities normally negotiate with the other interested parties on conditions such as Level of Ownership, Facilities Sharing, Employment Levels of students and faculty, etc.
The last economic model of IP Commercialization and another of the responsibilities that a TTO has is the negotiation of the establishment of a successful Spin-Off. In this case they will work with faculty members and students in creating a new venture that has as main collateral the IP developed by them in the course of their work inside the labs and other university facilities. Terms of that negotiation include the creation or use of Business Incubators, Need to Find Suitable Investors, Equity Participation, and Liquidity Event Terms.
The Los Angeles Area has a tremendous amount of activity in IP Commercialization due to the presence of world-class universities that include Caltech, USC, UCLA, UCI and UCR. Each one of them has a unique level of performance and success in IP Commercialization.
California Institute of Technology (Caltech)
Some of the unique characteristics that distinguish Caltech approach to the IP licensing arena include a tradition of alumni who used their inventions to start their own successful companies. Also they are the administrators for NASA/JPL, which enables them to harvest ideas from two very creative communities.
We will start by analyzing what allows Caltech to be so successful in this endeavor. Caltech consistently ranks among the top 3 universities in number of patents obtained, having over 110 patents issued in each of the last 5 years.
Another aspect of their approach is to create an environment that is friendly to industry and sets the underpinnings of long-term collaborations. Because each member of their Office of Technology Transfer (OTT) team oversees the complete process of tech transfer from start to finish, they can conclude negotiations faster than many universities where different steps are handed off from one person to other and valuable time is lost because each person needs to fully grasp the technology before they can do their part.
The OTT at Caltech is also very well known for their desire to promote entrepreneurship among students and faculty members. Since its inception, the OTT has been instrumental in the creation of over 80 new companies, contributing to economic development and job creation, as well as helping to improve faculty retention and increasing the level of donations from alumni and industry.
To better assist start-ups, the OTT has set policies that allow them to delay the payment for licensing in return for equity in that company. This permits start-ups to use their working capital in the pursuit of meeting milestones and developing their technology for subsequent rounds of funding, rather than spending valuable resources to obtain the IP license.
In the process of commercializing IP, the OTT in Caltech has developed very valuable relationships with the Venture Capital industry and other professionals that help companies grow, including consultants, layers and other service providers. Universities that have such valuable resources available have demonstrated higher success rates of IP commercialization and entrepreneurship than universities lacking them.
Actively collaborating with industry has allowed the OTT at Caltech to establish very strong ties with its Office of Sponsored Research, where companies can sponsor research that has the potential to benefit the company. The discoveries obtained through this vehicle are the property of the sponsor organization unless it was negotiated otherwise. Companies can also work directly on projects through the Center for Neuromorphic Systems Engineering.
A recent start-ups using Caltech technology is Supertronic a company that develops a new generation of very efficient Fuel cells. The company was created in 2006 and is the result of the research performed at Dr. Sossina Haile's laboratory at Caltech.
University of Southern California (USC)
The formation of the USC Stevens Institute for Innovation distinguishes this university from other institutions because it tries to establish an effective collaborative effort among the 18 schools that constitute the university, as well as tap the institute's vast pools of resources, talent and human capital to make technology developed there available to industry in an expeditious and friendly fashion.
The USC Stevens Institute for Innovation was created through a donation from Mr. & Mrs. Mark Stevens. Stevens is an alumnus of USC and a very successful venture capital executive at Sequoia Ventures. The head of the USC Stevens Institute for Innovation is Krisztina Holley, who prior to this position worked at MIT and has brought with her a great understanding of what is needed to spark innovation among students and faculty members. A measure of their success is the following data from last year. They were able to launch 8 new start-ups that use USC IP, which employ over 50 people and the bulk of them are based in Southern California. In addition, they have generated over $50 million in sales from their inventions.
One advantage that USC has over Caltech is that USC has Business, Media, Arts and Medical Schools in addition to Engineering, thus its innovation can have a greater societal reach.
As with Caltech, USC wants to foster an "Industry Friendly" atmosphere and engage in long-term relationships with small and large organizations. USC and Caltech are private institutions and have more freedom to operate in regards to technology licensing. Public universities at times are not allowed to license technology to big companies due to the perceived risk of putting small companies out of business, or to foreign entities because the research was funded by US tax dollars and therefore the companies have to be located here to be eligible for technology transfer.
Recent successful technology transfer using USC's IP include the licensing of 3D imaging technology to Bigstage, a company based in Pasadena operating in the entertainment world. Bigstage's product allows people to create their own avatars and integrate them into multiple forms of users generated content.
University of California at Irvine (UCI)
One the key attributes that UCI has over the two previous universities is that companies can negotiate access to IP from other schools in the University of California (UC) System through UCI. Seekers of IP licensing frequently get very favorable terms on a suite of patents that not only increases the value of the company's patent portfolio, but also allows them to operate with more freedom due to complementary patent coverage. In addition they can get matching funds from several State of California grants and tax credits.
UCI has shown highly developed skills in Technology Transfer, which despite of being a member of the UC System operates in a semi-autonomous fashion and has gained an excellent reputation for getting deals done that are beneficial for all involved parties. Their staff is formed of people with business and industry experience, so they are aware of the issues that industry looks at in partnering and collaborating in getting IP licenses.
On their website they indicate that beyond items related with being a public institution and that are subject to certain rules and regulations, "Everything is Negotiable". This includes fees, licensing terms and other related matters.
UCI also wants to be "Industry Friendly" and has as an objective to establish long-term relationships and attract industry sponsorship of research at their campus. Another item of interest is that as a public institution they can open their facilities to qualified individuals to conduct experiments or research in exchange for very reasonable fees for the use of equipment and chemicals or other consumables. IP ownership of those experiments is negotiated a priori. A similar modus operandi is either not available at private universities or is negotiated at substantially more expensive levels.
Occasionally the question arises of what the level of compensation is that universities command for licensing their technology. It depends, as discussed before, on the potential value of the IP. Additionally, when the university partners with another entity on a spin-off incubated on their premises, there will be a charge for space, facilities, equipment, personnel and services. The start-up created from such a venture is expected to allocate between 2% and 10% of the total ownership level to the university, depending on multiple factors. Also, when a liquidity event takes place the university will handle the proceedings in accordance with a distribution schedule agreed to beforehand.
A recent company formed from IP developed at UCI is RF Nano, a company that uses Carbon Nanotubes to create electronic devices capable of operating at very high frequencies.
Private Research Companies and Contract Research Organizations
There are also private research organizations such as Intelligent Optical Systems that are worthy of mentioning because they present another economic model. These organizations generate their own research, often using SBIR money to develop the technology, and then they attempt to commercialize their IP.
Such organizations can help companies find solutions to their problems. Also they are perfectly capable of doing contract research if a suitable agreement is worked out. Intelligent Optical Systems is located in Torrance and has been in existence since 1998. Using their own technology they have been able to create a number of spin-offs. They have received over $20 million in government contracts and grants, plus another $20 million in venture capital to finance their deals. Their technology can be applied in diverse markets including Automotive, Aerospace, Biotechnology, etc. For more information, please visit http://www.interopsys.com.
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