License Programs Targeted at Startups: We Can (and Must) Do Better

You may have noticed that several universities and government labs are forming ready-to-sign patent licensing programs or other initiatives with new licensing terms. Many of these programs target startup companies, like the University of North Carolina’s Express License program or the DOE’s America’s Next Top Energy Innovator Challenge program, which offers startups options to license patents for $1K. In fact, DOE’s program is part of President Obama’s Startup America initiative aimed at spurring economic growth through entrepreneurship.

Although they are well intentioned and a step in the right direction, many of these programs nevertheless suffer from a few shortcomings, in my opinion.

Most of these programs are aimed at reducing time to signature. This is a noble goal since the biggest complaint we at Fuentek hear from licensees is that it takes forever to get the dotted lines signed to put a license agreement in place with a university or government lab. However, this goal will be rather difficult to meet via these programs.

Many of these new programs offer predefined fees, eliminating negotiation of the terms. Unless the company accepts all the terms as defined, negotiations will still have to take place for the items in dispute. In addition, in the case of the DOE program, all license terms (royalties, access to technical support, exclusivity, ownership, timelines, etc.) are still up for negotiation, and that can take months. So this type of arrangement does little to eliminate the barriers preventing most startups with precious few resources from devoting the time and money needed to undertake the licensing process.

But perhaps an even more important point is whom these new licensing programs are aimed at—and whom they exclude. Most, if not all, of these programs are advertised as available only for startup companies. For example, as I recently blogged about regarding DOE’s program, the department is doing a great thing in lowering the cost barrier for companies to test, evaluate, and conduct due diligence before entering negotiations. And the program likely will increase the number of companies DOE brings to the negotiation table. But the program is available only to “newly formed startup companies.” Unfortunately, this often will exclude small-to-medium enterprises (SMEs) that may be a better fit to commercialize the technology and therefore spur economic development.

The fascination with startups is certainly not surprising. As we learned in panel discussions at the recent AUTM® Eastern Region meeting, many tech transfer offices are feeling the pressure to support startup growth due to the political support startups are receiving and their reputation as harbingers of job growth. But the goal is successful commercialization of patented technologies leading to economic development for the country. And with that end in mind, startups are certainly not the only means.

Consider the fact that, according to the Small Business Administration and the Bureau of Labor Statistics, approximately half of startups close within the first 5 years. (After the 5-year mark, attrition slows considerably.) Add to that the fact that many more established SMEs than startups have an infrastructure and more resources in place and therefore are often better positioned to bring a patent successfully to market.

Of course, startups are a part of the commercialization picture. Encouraging well-qualified entrepreneurship is certainly important. But it should not completely upstage the virtues and benefits of the SME. Unfortunately, so many of these new licensing programs embrace startups at the expense of the SME. This needs to change.

So what’s the solution? Like most complex issues, there is no simple, perfect answer. But Fuentek suggests addressing these issues at a policy level, rather than through a program initiative:

  • Make it a policy to provide favorable negotiating terms and fee ranges for companies that fit your organization’s definition of an SME (not just a startup).
  • Define what constitutes an SME according to easily obtained information, such as number of employees or annual revenue. (BTW, how many months or years ago is “newly developed” for a startup?)
  • Make a commitment to speedier negotiations no matter whom you’re doing business with, but especially with potential licensees that are short on resources and personnel (to accomplish this, we recommend a two-step licensing process).

The bottom line is that economic development occurs when companies—regardless of whether they are startups, SMEs, or large entities—grow and create new jobs, generating revenue for our nation. Put simply, to generate business faster for the nation, government and university labs need to get through negotiations faster.

Obviously, this is all easier said than done. But it starts with a commitment to improving negotiation practices. I’ll be sharing some specific advice and process improvements in new Fuentek webinars coming this winter. In the meantime, if you’d like to chime in to the conversation, please contact us or leave a comment below.

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Posted by Laura Schoppe

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