Ready-to-Sign Licensing Agreements: Does One Size Fit All?
I read the recent Technology Transfer Tactics article, “Ready-to-Sign Licensing Boosts Efficiency and Deal Flow,” with great interest as I flew to Las Vegas for the AUTM® 2011 conference. When the University of North Carolina launched its Carolina Express License Agreement a little over a year ago, I wondered if this was the start of a trend. It was.
In fact, there was a debate on this topic at the AUTM meeting, which positioned UNC and Carnegie Mellon University against Princeton. (Since I attended all three schools, it was like a house divided during March Madness!) Although my busy schedule during the conference prevented me from attending the debate, I have read quite a bit on this topic during the past year, so I thought I’d share my thoughts.
I am all in favor of streamlining in licensing activities, and standard agreements are definitely a useful tool. But they are best when used judiciously and in certain specific situations rather than taking a one-size-fits-all approach.
Here’s my advice for establishing a program of standard license agreements.
Know your goal (besides being more efficient and getting more deals). Your goal will guide the rest of the program’s details. Knowing your goal is important because some goals are mutually exclusive, like generating revenue versus creating an atmosphere of entrepreneurship or fostering economic development. UNC had decided that entrepreneurship was important but recognized that it might mean sacrificing revenue. However, they were ready to live with this, and I think their program is working well as a result. BTW, don’t forget to set your metrics to match up with any newly defined goals as a result of any change in your licensing practices. (More on metrics.)
Pick and choose eligible IP. In the TTT article, Mary Albertson noted that at Stanford “the [ready-to-sign] approach pays off for IP that is very inexpensive… because it saves us so much time.” We found that standard agreements can be a good option for software, having used them to help NASA commercialize the HHT and HSEG software programs. NASA wanted academicians to use the software to build the base for the HHT, so we automated the software usage agreement process, which allowed lots of agreements to be signed quickly. But this is not to say that such an approach is appropriate for all software. For most IP, the standard license option should be considered on a case-by-case basis.
Set terms according to the tech’s stage of development and risk. Life sciences IP is typically early-stage technology that is high risk for the licensee, so across-the-board standard licensing terms with a low percentage of equity (UNC’s approach for start-ups) is a good way to go. With engineering, however, this is not always the case. Some physical sciences technology is quite well developed, making the risk for the licensee lower and therefore justifying a higher percentage of equity or royalty revenue. So within the realm of standard agreements, tailor the terms according to the specific technology’s value. Otherwise you risk giving away too much in some situations and ripping off the licensee in others.
Remember the realities of a start-up. I’ve said it before: cash is king for start-ups. If the terms are overly onerous for a start-up, you are hamstringing the company and increasing its chances of failure, which is bad for you regardless of your goals. If your goal is to foster entrepreneurship or generate new businesses in the region, then the terms should be set to help the start-up succeed. (Read the blinded-by-greed example from 2 weeks ago.) If that means having standard agreements with different terms for a start-up versus an established company, so be it.
Don’t be short-sighted. Some struggle when setting terms in standard agreements, worrying they’ll set them too low and will lose out if the licensee hits the jackpot. I understand that concern, but remember that what goes around comes around. Chances are reasonable that a successful licensee with a direct connection to your university will give back. Consider “The Garage sponsored by Red Hat” at NC State and the $50M gift to UNC by Quintiles founder Dennis Gillings—both were university start-ups.
The bottom line is: There is a place for standard license agreements, but they should be constructed carefully and not take the place of all licensing negotiations. A one-size-fits-all approach simply is not fair or beneficial in all circumstances, and Fuentek would not advise it for our IP management clients.
So what do you think? How does your organization go about making the standard-license decision? If you were at the AUTM debate, please share your thoughts and insights.