Larry Gilbert and Michael Krieger
At first blush a straightforward process, commercializing the results of university research depends on many factors coming together “just right,” and in a hospitable environment. Because the variability of the actors and elements in the process tends to dominate any idealized model of successful technology transfer, this article focuses the unique features of the components rather than the process per se.
Universities are a wellspring of nanotechnology discovery, with the dominant portion supported by the federal government as it puts ever-increasing public funding into nanotechnology grant and contracts programs.[1] In contrast, corporate and other private developments are just that—private and substantially unavailable to entrepreneurs, investors, or others in the public. Combining this dichotomy with the fact that pursuing most nanotechnology ideas requires a level of capital investment and a team of scientific talent rarely assembled by the lone inventor, the research fruits of universities (which typically are mandated by federal funding to be made available for commercialization) present a central opportunity to entrepreneurs and investors for involvement in nanotechnology—to find discoveries to turn into viable commercial products.
The lab-to-market journey—whether involving nanotech or another technology—is generally referred to as technology transfer and is initially shepherded by a university’s office of technology transfer (OTT) or licensing office.[2] Idealized, that process is often characterized in terms of these major steps:
A research discovery or technology advance is made by a professor or other senior researcher (the “invention”).
The invention is disclosed to the university’s technology transfer office.
That office files a provisional patent to protect associated intellectual property (IP).
The office “markets” the invention to or responds to commercial interest from potential licensees that are willing to bear the cost of patenting the invention, developing the technology to commercial viability, and taking it to market.
Three caveats are in order lest this process seem overly straightforward and easy to execute.
First, the sequence requires that all the actors involved—the people, companies, and institutions—pull together, that is, cooperate to a considerable degree to make the deal, as well as the technical development, commercially viable. Any significant aberration, such as unreasonable licensing terms, stands to break the chain of steps needed to bring the discovery to market, or perhaps even prevent making it to the patent office. Second, discoveries also advance from lab bench to market shelf in other ways, several of which are described later in this chapter.
Finally, and most fundamentally, we put “markets” in quotation marks because it implies and represents the common belief that an OTT’s market push creates technology awareness, interest, and ultimately license deals. In our view, this almost universal faith is misplaced: Although “push” marketing is done almost universally by tech transfer offices nationwide, we believe its effectiveness for sophisticated technologies is minimal, if not mythical, when compared with the “pull” of awareness created by a researcher’s publications, professional presentations, former students, Web sites, and so on.[3]
This chapter describes key facets, dimensions, and pitfalls of technology transfer that need to be understood by anyone hoping to participate in moving an attractive scientific or technology discovery into the commercial world.
As already suggested, our present focus is not the process per se but rather its components. The reason is fundamental yet perhaps too little appreciated: Although each tech transfer commercialization certainly reflects and results from an identifiable process, it is decidedly not manageable as such. That is, the word process suggests that one can delineate a set of steps, criteria, measures, inputs, outputs, and so on and then hand them, as if a recipe, to someone of reasonable skill to manage for a variety of situations and technologies.
That would be true if the commonalities existing among the various successes dominated the story. Nothing could be further from the truth. Rather, the unique differences in the constituents must be dealt with. Each deal must be handled with its own particular emphasis on the blend of ingredients, from human factors to royalty rates.
Indeed the misconception of emphasizing tech transfer as a process has seriously undercut the potential success of many tech transfer efforts; unfortunately, emphasizing commonalities of process from deal to deal diverts attention from the unique, vital, and critical deal-dependent differences of the components. These include faculty personalities, the nature of the technology, the time and capital required to advance from laboratory discovery to proof of concept, the nature of the market, and other factors.
Ultimately determinative of success are the motivations and relationships of those involved. We thus look at the researchers, their relationships with their institutions and administrators, and the types of arrangements they have with commercial entities. Subsequent sections treat those components and their special elements that affect the success of transferring an invention and technology.
This question is underscored if one looks at the statistics: Few university OTTs generate enough income to justify themselves when measured strictly by revenue. But many other reasons exist:
Federal Mandate. U.S. government funding may require the university to at least make the resulting discoveries available to those who might commercialize them.
Equity. A share in an early-stage company that succeeds can eventually be very valuable.
Faculty recruitment. A significant number of faculty members want to see their results commercialized, for reasons that range from the greater social good, to the opportunity to interact with industry, to the hope of enhanced income from sharing in royalties resulting from the invention’s commercialization.
Goodwill. Faculty and alumni who become business successes, and others in the business world, are more likely to become donors if they recall and see an environment that encourages technology entrepreneurship and business development.[4]
Technology can pass from a university into the commercial world in many ways; five are discussed in more detail later in the section “Types of Business Relationships.” Typically, the discovery or result of interest centers on a patentable invention by a professor for which the university will file a provisional if not full utility patent. The simple process model sketched earlier then posits that a commercial entity learns of the invention, desires to exploit the technology, and thus executes a licensing arrangement with the university. The licensee may be an established company or a start-up formed by entrepreneurial researchers from the university. Depending on the type of licensee, the agreement may provide for some up-front payment or equity in the licensee in addition to royalties on sales when the technology enters the market.
In reality this simple picture is incomplete or masks many potentially distorting elements. Most fundamentally, successful development of a technology usually requires—in addition to rights in the relevant patents—the know-how of the discoverer and his or her graduate students and other lab personnel. This in turn means that the licensee’s commercial venture likely requires the professor’s cooperation, typically in the form of a consulting arrangement or employment of (former) students. It is essential to appreciate that absent such know-how a patent may well be worthless.
With this in mind, we now look at the sources of technology, the effects of academic culture, and the types of business relationships that provide vehicles for technology transfer.
Implicit in the preceding section is a licensable or otherwise transferable technology, that is, one that has come to the attention of the university and is being protected by the patent system.[5] Indeed, by virtue of faculty, grad student, and staff employment agreements, as well as the Bayh-Dole Act requirements for federal funding, ownership in any invention—and typically in any discovery—vests in the university (unless it disclaims the invention).[6]
How does the university administration learn of the invention? It finds out in the same way corporate administrations do: by the inventor submitting an invention disclosure form. Of course, that depends upon whether the inventors submit the disclosures.
Indeed, to the extent that faculty fail to disclose technology so that patent protection can be invoked, the technology may become part of the public domain and fair game for all, especially if it is disclosed at a professional conference. Although this may at first seem socially desirable, the lack of a patent-conferred monopoly may hinder or effectively prevent commercial development should the technology require a deep investment to render it viable.
In enlightened companies there are educational programs to help researchers realize that what their deep familiarity with the technology makes “obvious” may not be and could well be patentable. Moreover, many companies conspicuously display their patents and reward their inventors with payments upon invention disclosure, patent filing, and patent issue.
In contrast, few universities have effective IP education programs, and virtually none has an immediate cash award. But in contrast to private industry, university inventors typically receive a substantial share of the royalty stream, commonly 25–50 percent (an arrangement very rare in the private sector).
Although such a high royalty percentage might seem to be a strong incentive for invention disclosure, faculty generally recognize that the tech transfer policies and practices of their institutions are a gateway to achieving royalties. Thus their confidence—or lack of it—in their tech transfer offices is a key determinant of their willingness to file the disclosure statements that trigger the OTT’s involvement and IP protection. After all, why bother if nothing will come of it?
More broadly, lack of trust may arise for various not entirely independent reasons:
Distrust of institutional administrators generally
The belief that tech transfer officers are looking out for the university and might at some level be disingenuous with the faculty member
Doubt about the OTT’s ability to market (find licensees for) the invention (for researchers who believe this to be the OTT’s role)
Doubt that the OTT has the business sophistication and nimbleness to make contract arrangements that investors or industry will accept
An OTT’s reputation (whether or not justified) for being difficult, unresponsive, or unsuccessful
It should be recognized that a certain amount of tech transfer will take place in every major research institution, even those saddled with these liabilities. Some technologies speak for themselves, some researchers have enormous entrepreneurial and business skills, and some individual technology transfer officers have the interpersonal skills to overcome a general distrust of their offices or their histories.
But in the institutions that have had truly successful programs, the researchers trust the OTT (and conversely the office trusts them). Not only does this encourage formal disclosure of inventions, but also it means, among other things, that the OTT is likely to be privy to research developments early on, is welcome in the lab, meets the graduate students who may be the ones to carry the start-up ball or to go to work for a licensee, and so on. Furthermore, it means that when the OTT wants to show or explain the technology to a potential licensee or partner, the researcher is likely to cooperate and spend the time it may take.
A potential licensee, especially a corporate entity, may have to make considerable adjustment in dealing with a university compared to the familiar styles of commercial suppliers and partners. This can manifest itself, for example, in problems with maintaining the secrecy it may usually take for granted and in the slow pace of negotiation. In the following sections we delineate key factors affecting the perspectives of university personnel.
“Publish or perish” remains alive and well. A professor’s publication record is central to salary and position within the university. Similarly, any researcher’s bibliography is a critical qualification for external funding. In parallel, reputation among peers—arising from activities such as research collaboration and conference presentations—is requisite for the professor to get the favorable letters of support solicited by outside funding sources (such as federal agencies) and by campus promotion committees. All this puts a premium on early dissemination of research. Closely allied is the spirit of academic freedom—the belief that on campus almost any topic of discussion is acceptable and available to be discussed and shared freely—and its corollary: Restraints on sharing information are unacceptable.
What does this culture imply? First, it implies that commercially valuable ideas may be released into the public domain, that potential patents may be barred by early disclosure, or that an existing licensable patent (or application) may be subject to invalidation. Second, if an acquirer of technology is considering a partnering arrangement there will need to be a mutual assessment of what level of research secrecy is really needed and how it fits the personnel and institution involved; for example, it must be determined that no insurmountable conflict exists with the views of academic freedom held by the campus personnel, with university policy, or with obligations under government funding.
Practical needs for publication and presentation must be taken into account when a commercial entity negotiates consulting services, whether they are made directly with a faculty member or as part of licensing a patent. To this end, for example, confidentiality provisions may need to be customized in lieu of using nondisclosure agreement (NDA) forms. More generally, to the extent that key faculty are necessary to exploit a technology, personality issues come into play; some university faculty are resistant to being told what to do; others are quite naive about business practices, and still others are most cooperative. The main issue is to be prepared so that, for example, cooperative but less worldly faculty can be coached to appreciate corporate business practices, to understand that some of their work for the company cannot be immediately shared at conferences or in publications or that turning research into a marketable product takes many times the cost of the underlying discovery and will take time.
To a significant degree, the nature of a university or other research center as a large organization is antithetical to developing a successful technology transfer program. In large measure the conflict is one of having a short- versus a long-term view in establishing goals and evaluating results. Although many of the reasons for technology transfer are intangible benefits, an OTT nonetheless costs money, so licensing revenue becomes the most natural measure of its success.
To a start-up, licensing means little or no initial royalty payment and a long window until sales yield royalties. And even if an established corporation is the licensee, it is likely to require some years before profitable, royalty-generating sales occur. Meanwhile the costs of filing and maintaining a patent portfolio as well as the OTT staff and overhead costs appear every year in the university budget. This may lead to tension between the OTT staff and university administration as to whether or not to patent an invention; for example, the admin may want to patent only the “viable” technologies (somehow expecting technology transfer personnel to bat 1000 at picking the winners). Yet picking a commercial success at such an early stage is simply not possible. To underscore the point, venture capitalists—who invest in technology at a much later stage—themselves end up funding far more losers than successes.
On the other side of the coin, many researchers will believe their discoveries are unquestionably worth patenting, and then they will become disenchanted with the OTT should it fail to recommend patenting their discoveries.
Another organizational factor running counter to tech transfer effectiveness is that OTT personnel may feel pressure to perform in a shorter time frame than is realistic; in other words, annual reviews do not comport with the three to five years it may take to know whether the deals done by the OTT member were good. This can cause turnover of tech transfer staff and the attendant failure to build the faculty relationships and develop the trust that is requisite to motivating invention disclosures and post-disclosure cooperation.
Although licensing a patentable technology to a commercial entity is the most visible mode of transferring technology, it is only one of a variety of arrangements that are commonly done. Valuable IP is typically acquired through one of the following forms of relationship with research institutions.
In this first method, the university grants certain rights in intellectual property to a third party, the licensee. Licensees are typically one of two types: an existing company interested in some technology the university holds, or a new start-up company. Licenses can be exclusive or nonexclusive and usually involve patents, although some occasionally include software.[7]
The university will try to limit the field of use for the license, and the company will often want to negotiate a more expansive field because it may be unclear at the time the license is granted which fields or applications best suit commercial application of the invention. The university will generally require, in the case of exclusive licenses, evidence of diligence in exploiting the technology. Generally the lack of such diligence will cause the license to become nonexclusive or the field of use to be reduced.
Even when granting an exclusive license, the university may retain certain rights, including the right to use its invention for research and development. The federal government also retains rights under the Bayh-Dole Act, and there may also be third-party rights.
Failure to investigate and to keep these rights in mind can lead to later disappointments.
As the leaders—and frequently the definers—of cutting-edge scientific breakthroughs and technology advances, university faculty can be uniquely valuable consultants to a corporate R&D effort.
For the most part, patented technology is best developed and exploited with the help of its inventor, because there is usually extensive, valuable know-how that is not necessarily disclosed in the formal patent. To this end, part of a licensing arrangement will involve participation by the faculty members whose research led to the patent.
As with any other outside contractor to the company, faculty consulting may also be arranged independently, in which case there may be no specific university involvement. In this case, particular care must be taken to set out the parties’ expectations and ground rules for the scope of the engagement. This is because faculty members almost surely have obligations to the university regarding ownership of IP related to their funded research. If the consulting yields, for example, patentable inventions closely aligned with the university-based efforts, disputes over ownership could arise, especially were the consulting to lead to a corporate product with visible financial success.
Promising, innovative university technologies are often best developed under the mantle of a separate company. The transformation from lab bench discovery to economically viable technology may require resources not found in or not appropriate to the university setting; conversely, the intense and autonomous work needed to prove the technology may not fit under the corporate wing. Such a start-up may be initiated by a faculty member and graduate students, or it may be explicitly contemplated by a licensing arrangement. In either case, a technology license and corporate investment in the company will likely go hand in hand. Often, the relationship will have been initiated by corporate R&D personnel, who learn of the technology from conferences and publications. Other times university “show and tell” events give rise to the relationship.
Once they are aware of faculty working in areas of corporate interest, some companies have found it useful to cultivate a link with the faculty member through research grants. Typically such grants do not have a specific mission but rather simply contemplate work within a specific area. In significant measure, the main function of such grants is to establish a channel of communication with the faculty member so that the company has an early awareness of the research or ready access to consulting time of the professor and employment of advanced and knowledgeable students.
Continuing relationships between a corporation and a university may take many forms. Specific departments and schools often have industrial affiliate programs in which a company makes an annual contribution and, in turn, gains advanced access to university research through special programs, meetings, and the like. At the other end of the spectrum, a company may fund a major research facility on an ongoing basis in exchange for a right of first refusal and certain exclusive rights to the fruits of discovery from the funded research.
Perhaps the biggest risk in acquiring technology from a university is to be sure that the ownership of the IP is clear. Although this is not as likely to be a problem in pure licensing arrangements, it can become murky in consulting and partnering unless one is alert to potential pitfalls. Indeed litigation—although relatively uncommon—has been rising in the tech transfer context, no doubt because of the increased frequency of technology being transferred without a corresponding gain in sophistication about tech transfer and intellectual property. Considered here are the most common litigation risks and what a business can do to prevent getting embroiled.
Inadequate attention to detail when licensing university technology can result in a host of problems. First, a company should require that the university represent and warrant that it owns the technology that it is transferring. There have been cases in which non-university entities have claimed they developed the same technology the university has licensed. Second, make sure that the university is clear about the scope of the technology’s application or market. Litigation has arisen over the proper scope of the university’s license to an outside company. Third, inquire whether the university has offered other licenses on the technology, to guard against errors in the university’s licensing program. On occasion, universities have been known to unwittingly offer overlapping “exclusive” licenses. Similarly, a “favored-nation” clause in a non-exclusive agreement with an initial licensee may be overlooked in deals with later licenses.
Hiring a professor who is an expert in a company’s research and development field is a popular and effective way to bring cutting-edge academic knowledge to the corporate setting. Unfortunately, there are litigation risks. First, and foremost, the corporation must assure itself that the professor is not taking university-owned technology off campus. This can be a tricky inquiry. The best place to start is to obtain a copy of the university’s patent policies. This will give the corporation a checklist of the do’s and don’ts for its consultant professor.
Typically, a university’s patent policy is part of its professors’ binding employment contracts. The corporation should ask professors to represent and warrant that none of the work that they will be doing for the corporation would represent a violation of their obligation under the patent policy. A recommended precaution is to be sure that professors in fact understand the policy by, for example, having corporate counsel review that policy with them.
Second, the corporation should make sure that professors have not entered into any joint venture with any other person (such as an agreement with a former graduate student to develop the same technology with which the professor is now helping the corporation). Again, the best way to protect against this litigation risk is to have professors represent and warrant that the technology that they are consulting about has not been developed in conjunction with (or with the assistance of) any third party.
Finally, a consulting professor can cause problems when the corporation is making a bid for university technology. Although it is true that a university in a technology licensing bidding process may well favor a company that has hired one of its faculty members, the professor (and his or her corporation) must be careful not to corrupt the bidding process. Professors should not use their position at the university to influence the bidding on a university patent license beyond the channels available and known to every bidder. For example, professors should not use the faculty dining room as an opportunity to politic the head of the licensing office for the company to get the technology when other bidders cannot engage in the same sort of lobbying. Such activity could, in some jurisdictions, subject both the professor and the company to legal liability.
Because universities are increasingly attempting to market their technology, a corporate researcher may be shown technology under circumstances that suggest confidentiality or other obligation, and thus the researcher needs to be careful about how information gleaned from visiting university facilities is used. Overzealous corporate researchers could create significant exposure to liability if they misuse university technology learned about while chatting with university faculty.
In sum, as with all corporate dealings, the basic rules of the road are the same for avoiding litigation in technology transfer licensing: (1) Get it in writing, (2) make sure somebody else’s intellectual property rights are not being violated, and (3) make sure that deal terms are clear and state exactly who bears the risk.
At the heart of a successful tech transfer program is the trust between the faculty and the university personnel shepherding the invention toward viability and the commercial world. Without that trust, far less technology will be disclosed by researchers, faculty will be less willing to cooperate with the OTT, and unseen “leakage” of inventions into the private sector will be more common. Although our setting is academic and not corporate, it is appropriate to recall the words attributed to John Patterson, founder of NCR Corporation, who said nearly a hundred years ago that the only assets a company really has are people, ideas, and relationships.