Patents and Licensing University Technologies
Jason S. Wood, Attorney, Wyrick Robbins Yates and Ponton LLP
Universities and other non-profit institutions are rich sources of early-stage technologies for building new businesses or complementing an existing business’s product pipeline. Although working with such institutions poses a unique set of issues, at the core of any such licensing transaction are the same issues a technology-based business encounters when licensing technology from for-profit entities. The following addresses three patent-related topics crucial to the success of any such license.
License Grant: Getting What You Need
First, you must be sure to license all of the intellectual property rights necessary to pursue the desired opportunity. Full diligence should be conducted, using patent counsel if possible, to ensure that:
- any patent applications to be included in the license are likely to issue with the desired claims; and
- rights to all of the institution’s relevant patents are obtained under the license grant.
As part of this analysis, be sure to determine whether the institution owns all rights to the desired patent rights. If there are inventors from other institutions or third party assignees of any patents, and you are seeking an exclusive license, those other inventors or owners should be included as additional licensor parties to the license. If that is not possible, you will have to separately negotiate with them, for additional economic consideration, in order to tie up all rights to the technology.
A last component of such diligence should include a determination of whether there are any third party patents that cover the technology of interest. If so, it could have a critical impact on your ability to execute your business plan without encountering infringement litigation, and it should at least be factored into the negotiation of the license’s economic terms (including royalty adjustments to account for the payment of royalties to third parties, if necessary). If unpatented know-how or trade secrets exist that may be useful, valuable, or necessary to effectively practice the patented technology, secure rights to them under the license as well.
Also assess whether your business plan requires exclusive rights (and the market advantage they convey) or merely freedom to operate under the institution’s intellectual property (a nonexclusive license). Further, carefully consider the field of use your business will need to fully exploit the opportunities presented by the technology – now and in the future. Finally, consider whether your business plan relies heavily on strategic partnerships. For many businesses, particularly new and/or growing businesses, freedom to sublicense is critical to maximizing the value of the opportunity, ideally with a minimum of economic or logistical interference from an institution that is a few steps removed from the transaction.
Control: Patent Prosecution
In an ideal case, you, as licensee, should control the filing, prosecution, and maintenance of the licensed patent estate. That is sometimes possible in academic licenses, but many institutions insist on retaining control of their intellectual property assets. In such cases, the license should ensure that the institution provides the licensee with copies of all relevant correspondence and an opportunity to advise and comment on the institution’s patenting activities.
Although any exclusive license with an institution will require the licensee to support patenting costs, it should also include the ability to terminate such responsibility with respect to particular patents – especially foreign filings – in order to avoid having to support significant costs for patents of little or no value to your business. Of course, the price of such a decision will be the exclusion of such patent from the license, but that should be of little consequence if the patent is truly not worth supporting. Finally, one should be sure to address the converse situation – including the ability to take over prosecution and/or maintenance of any patent or application that the university may wish to abandon (in case your opinion of its value differs from the institution’s).
Infringement: Protecting Your Business
Assuming that the licensed patents have been prosecuted and maintained appropriately, how will you be able to protect the market exclusivity they confer? Since your venture, not the licensor institution, will:
- have the most at stake economically; and
- be best positioned to pursue infringers, it is critical that, as an exclusive licensee, you obtain the first right to take action against potential infringers and control such process – including settlement – subject to reasonable limitations protecting the university against actions which could be detrimental to its interests.
Any damages or recoveries resulting from infringement litigation or settlement should be split equitably between the parties, in a manner analogous to the parties’ relative economic interests in the technology as expressed by the royalty provisions. Academic licenses often include a 50/50 (or worse) split of such proceeds, which may significantly exceed the university’s share of the licenses other economic benefits. This inequity may discourage you from pursuing infringers by altering the risk-benefit analysis of costly litigation in a manner that decreases your sensitivity to potential infringement (which is bad for both parties).
Appropriate handling of the issues described above will set the stage for successfully exploiting licensed technology by ensuring that you have acquired the appropriate patent rights, ensuring that they will be sufficiently protected going forward, and enabling yourself to use such rights to protect and enforce your position in the market. Of course, there are many other issues which must be properly addressed in any license agreement in order to maximize the success of a technology opportunity, but appropriate handling of the aforementioned concerns will set the stage for an informed and successful negotiation of these other matters.
© 2006 Jason S. Wood. All rights reserved.