OTD Services: License Agreement

Purpose
The University's primary objective in licensing technology is to maximize the likelihood that products based on the technology will reach the market in a timely fashion. Financial terms will be such that, in total, the University receives fair value for its technology. The terms will be structured so as not to place such a burden on the licensee that its ability to successfully develop a product is inhibited.

Scope of Licenses
Terms of a License
The following are among the relevant terms of a license:

• Development Terms
  Development milestones will be tailored to the particular technology and may include commitments to achieve specific goals in product development, initiation of clinical trials, initiation of sales by a specific date or simply the commitment of a certain level of resources by the licensee.
• Financial Terms
  License agreements may include one or more of the following elements:
• Reimbursement of clearly identifiable expenses associated with the technology that heretofore had been borne by the University, such as past and future patent costs;
• An initial upfront payment, which may include equity in the company. Because of the long developmental lead time required for certain types of products, especially pharmaceuticals, start up and early stage companies which are financing product development out of capital rather than out of cash flow from existing products often attempt to minimize cash payments until close to product introduction. One way for them to compensate the University under these circumstances is to issue stock rather than making cash payments. When the company's stock subsequently becomes publicly traded, the University can sell the stock, effectively obtaining its cash compensation from the public market rather than from the company. The University of North Carolina at Chapel Hill has recently adopted a policy on equity acceptance as part of licensing transactions;
• Milestone Payments: It may be appropriate to seek additional payments when key steps in product development are achieved that significantly enhance the value of the technology. Such steps may be technical (e.g., humanization of an antibody, over-expression of a gene); proprietary (e.g., issuance of a patent); regulatory (e.g., initiation of different phases of clinical trials, approval to market); or commercial (e.g., issuance of a sublicense, start of commercial sales, amount of capital raised);
• Annual Minimum Royalties: Annual minimum royalties represent a guarantee by the licensee that a certain level of royalties will be paid. They normally will be negotiated based on a percentage of expected earned royalties and are intended to motivate the licensee to diligently promote sales of the technology in the marketplace. Annual minimum royalties also serve as a means by which both the University and the licensee periodically can evaluate the development of the technology. If the licensee is not aggressively pursuing commercialization, then it is unlikely that it would be willing to meet the minimum royalty requirement. In such cases, the license can be terminated, and the University can seek a different licensee;
• Running (Earned) Royalties: Running royalties are payments, normally expressed as a percentage of sales, that represent the University's participation in the commercial success of the product. Running royalties are relatively risk free to the licensee, because they are paid only when the licensee is receiving revenues from the sale of products;

Other (e.g., research support);

• Lump Sum Payments: It may be possible to negotiate a lump sum payment for the technology. The amount will reflect the size of the market for the product and how soon market entry can be achieved.

Consulting
It is frequently possible (and often required by the licensee) to establish a personal consulting agreement with one or more of the inventors of a technology. Such negotiation is separate from the licensing transaction, but often quite relevant to its outcome.

Jointly held inventions
Under U.S. law and absent an agreement to the contrary, if there are coinventors at other universities, each can exploit the patent without a financial accounting to the other(s). For this reason, the University generally negotiates an Interinstitutional Agreement with the other university in order to be able to market one "bundle" of rights.

Responsibility
Licensing proposals are developed by OTD. Input from the inventors, particularly on the fields of the invention, is very important in ensuring that all markets for the technology are addressed. Final approval of license terms and execution of resulting license agreements is the responsibility of the Associate Vice Chancellor for Technology Development, Mark Crowell. Financially significant agreements and any involving equity will be reviewed by other members of the University’s administration.

For other information on licenses and agreements, visit Research at Carolina, a resource for Carolina researchers, inventors, grants managers, postdocs, and students.