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Home > Resources > Inventors > Licensing

Licensing Principles

When licensing technology to a third party, a number of general principles provide the framework for universities in their negotiation process:

• Universities are non-profit and serve the public - Universities have three basic missions: education, research and serving the public. It is important to recognize that the foremost objective for an institution in a licensing negotiation is to ensure that the university's technology reaches the marketplace in a timely manner for the benefit of the public. Achieving a fair return on the university's (and taxpayers) investment also is an important objective.
• Universities own their technology-The Bayh-Dole Act of 1980 providing universities with the right to maintain ownership of inventions made by their employees using federal funds. The vast majority of universities also have policies providing for ownership of all inventions made by their employees except for a historical exclusion of works of authorship such as text books, music, and art. Generally universities will maintain ownership of technology (vs. assigning rights) and provide license rights (exclusive or non-exclusive) while controlling the protection and maintenance of patents or copyrights. This strategy ensures that the university maintains ownership of the technology should the license be terminated.
• Reimbursement of patent costs - While universities often are willing to take the upfront financial risk to obtain patent or copyright protection for their technology, once a third party elects to commercialize the technology, it will be required take over the financial risk from the university. Typically the licensee reimburses the university for all its costs associated with the preparation, filing, prosecution and maintenance of the licensed patents.
• Obligations to the government - Government funding carries a number of obligations that must be met by the university. First, the university must report to the government all inventions, patent applications and licenses of federally funded technologies. Patent applications and subsequent issued patents must recognize the government funding in writing. In addition, the university must give the federal government a royalty-free non-exclusive license to federally funded technologies. This government license will be referred to in the company license.
• Diligence- Because the university has as its overriding objective the commercialization of its technology, the license will provide for certain diligence milestones to be met by the licensee to ensure that the technology is being diligently developed and commercialized. For pharmaceuticals, these often are clinical trials milestones, for other products, diligence terms might include first prototype, first sale, etc. Sometimes diligence terms or milestone terms include financing milestones (typically with startup companies) or issuance of first patent, etc.
• Fair Return - A license agreement should provide for a fair return to the university if the product is successful in the marketplace. When the technology is licensed to a start-up company, most universities are willing to participate in the early risk by taking equity in lieu of cash payments. However, once the licensee is obtaining revenues on the product, the university will expect a portion of these revenues. Typically revenues back to the university are provided as royalties on sales. The negotiated percentage is generally based on a number of factors including: the relative profit margin for the particular product, investment required to commercialize the product, competing technologies, strength of patent and copyright protection, and type of license rights (non-exclusive vs. exclusive). Licenses may also provide for the university to receive other payments such as license fees, annual maintenance fees, and minimum royalties.
• Product liability, insurance, indemnification, warranties- The licensee will indemnify the university, its employees, regents, trustees, etc against all claims, proceedings, demands and liabilities of any kind whatsoever. Universities may also require that the licensee obtain certain amounts of product liability insurance prior to commercial sale of a product. The university will not make any warranties as to the fitness, merchantability, validity of patent rights, etc. The licensee assumes all risk associated with the licensed technology.