Licensing

Licensing

What are TDG’s priorities when licensing UCLA technologies?

Above all else, TDG wants to get UCLA technologies developed, commercialized, and into the marketplace.  Ideally, such efforts generate licensing revenue that flows back to the inventors, as well as to UCLA to enable it to fund additional research activities on campus.  Analyzing whether the financial success of a technology will outweigh the costs involved in licensing it (primarily patenting expenses) is multifaceted and complex.  TDG’s licensing staff is highly trained in conducting such analyses and its Business Development Officers possess significant experience working within the industries of their technology portfolios, both of which have translated to TDG’s increasing success rate in licensing UCLA technologies. 

How does TDG decide whether to patent and license a technology?

Upon receipt of a disclosure of a technology to TDG, such technology is assigned to the relevant Business Development Officer (BDO) for review and assessment of its patentability and commercial potential.  As necessary, the BDO may contact a patent attorney for a preliminary analysis and/or reach out to industry contacts to assess the level of interest.  If a technology appears to be patentable and possesses a requisite level of commercial potential, then the BDO pursues patenting of the technology and TDG commences its marketing efforts to identify the most ideal industry partners to commercialize the technology.

At a high level, what is a license agreement?

A license agreement involves an exchange of promises made between the owner of a technology (the “licensor”) and the entity desiring to commercialize the licensed technology (the “licensee”).  While UCLA TDG negotiates, executes and manages the licenses, the licensor is actually the UC Regents as, per policy, it owns title to the inventions made by UCLA employees. 

In a typical exclusive patent license agreement, the UC Regents promises to give solely the licensee rights to the UC Regents’ interest in the technology.  The UC Regents also agree (via UCLA TDG) to manage the prosecution of any patent applications through the patent office and to maintain the patents once they are issued, at the licensee’s expense.  Importantly, UCLA TDG also ensures the license agreement adheres to any obligations required by the sponsors that funded the licensed technology; for example, the Bayh-Dole Act imposes on the funded institution certain obligations (development diligence, reservation of rights to the U.S. Government, U.S. manufacturing requirement, etc.) when licensing a federally funded invention.

In exchange for such promise by the UC Regents, the licensee agrees to fulfill certain obligations, including achieving certain development milestones and making various payments.  The development milestones typically include reaching a series of required development stages (e.g., raise a certain amount of capital for development, obtain FDA approval from a regulatory agency, sell a first product, etc.) by a specified date.  The payment obligations often consist of a combination of:  a fee upon execution, a recurring fee on an annual basis, reimbursement of patenting expenses, payments when certain diligence milestones are met, a royalty on each product sold, and a percentage of any consideration the licensee receives if it passes on its rights to another entity (referred to as a “sublicensee”).

Of particular note to the inventors, TDG at all times ensures that the license agreement reserves the right for the inventors and other academic researchers to continue to conduct academic research involving the technology, including creating improvements to such technology.  In addition, unless specifically agreed to by the applicable inventors, the license agreement will not commit any of the inventors to collaborate or assist the licensee in its commercialization of the technology.  In fact, many license agreements have led to the licensee sponsoring research in the inventors’ labs and/or retaining the inventors as consultants.  

As an inventor, what is my role in the licensing process?

UCLA TDG enthusiastically welcomes the input and advice from the inventors.  In fact, often TDG’s potential licensee leads come from the inventors themselves.  While inventors are never required to provide assistance in the commercialization of their technologies, TDG welcomes such involvement and is increasingly identifying and encouraging opportunities for licensees to sponsor research in the inventors’ labs to accelerate the development of the technology, which benefits both the licensee and the inventors.

Can I license my own technology? What are the restrictions that apply?

Yes, faculty inventors can license the technology they create into a startup company they found.  That said, there are a few caveats.

If an inventor wishes to enter a short term stand-still agreement or Letter of Intent for either 3 month or 6 months duration prior to company formation TDG has an Express Letter of Intent (LOI).  This Express LOI can be signed by the inventor as long as there are no changes to the template form.

  • If the inventor wishes to add a term sheet or customize the LOI, then they would need to form a company.
  • Next, please note the faculty member is not permitted to negotiate the terms of the license or an option – there would need to be a “representative” for the company, which could be a (non-UC employee) business lead or an attorney. 
  • Also, the company need not execute a license immediately if it is not in the position to commence commercialization of the invention. 
    • For example, the company may request to enter into a Letter of Intent or Option Agreement if the company has yet to receive investment. 
    • Please note it is a misconception that UCLA inventors are able to license their inventions at a “reduced rate.”
    • TDG attempts to make the licensing process feasible for startup companies by back loading the consideration received and also by letting companies start with LOIs, convert to longer term option agreements and then when ready, enter a license agreement.
    • The license agreements are back loaded but still have an upfront cash payment and often equity in the company and then other fees as the technology develops and royalties on the ultimate sale of a licensed product.
    • The   company is expected to pay for patent expenses incurred during the term of an option or license agreement.
How are inventors compensated by the UC Regents and what is the “University Waterfall”?

Per UC/UCLA policy, inventors receive a percentage (which varies depending on which policy applies) of the revenues UCLA receives from licensing fees, royalties and equity attributed to their invention – this is often referred to as the “inventor share.”   

The UC Regents is currently working under two patent policies as reflected by the chart below.  While the Current (1997) Policy is in effect, some long term UC employees can choose whether to have their inventions administered under either the Old (1963/85) Policy or the Current Policy. 

  • For inventions disclosed on or after October 1, 1997, the invention disclosure date and the inventor hire date will determine which policy is applicable. 
  • If an invention is disclosed on or after October 1, 1997, but the inventor was hired before April 16, 1990, the inventor can choose (provided such decision is irrevocable) between the two policies. 
  • If an invention is disclosed on or after October 1, 1997 and the inventor was hired after April 16, 1990, the invention will be administered under the Current Policy.
Chart of University Patent Policy

Definitions:

Net Income: The definition change of “net income” is crucial to understanding the differences in the policies. In the old policy, 15% is taken off the top as a general pool “administrative fee.”  Expenses are then deducted from the remaining 85%, with the balance divided equally between the inventor and general pool. In the current policy, only expenses are taken out before dividing the inventor shares three ways - between inventor, research share, and general pool.  Please note Net Income must also take into account prior to applying the foregoing waterfall any distributions required in view of third party obligations, if applicable, e.g., invention is jointly owned with another institution, the inventors are employed by another entity (e.g., Howard Hughes Medical Institute) or have dual appointments (e.g., Veterans Affairs).

Total Income: All income received from royalties, fees and equity cashouts.

Research Share: Designated for research-related purposes at the inventor's campus and allocated based on plans developed at each campus. The research share only exists under the Current Policy.

General Pool:  This income accrues to individual campuses based upon income for all inventions made by inventors at that location.  The Pool is used to cover: (1) Program costs - unreimbursed direct expenses of patenting and licensing inventions, costs of operating technology transfer program; (2) General Fund Share - the University General Fund supports activities and programs across the UC System; and (3) Any residual income above program costs - Chancellor or DOE Laboratory Director discretionary use in accordance with UC policy and law.

For additional information, see http://www.ucop.edu/innovation-alliances-services/staff/financial-administration/inventor-share-policy.html.

Please note:  The above summary is not a binding legal analysis – whether and to what extent an inventor will have rights to share in Net Income will ultimately reside with the facts and policies that apply to such inventor.

What does all of this technology jargon mean?

Diligence Milestones:  Central to TDG’s mission is its efforts to ensure the technologies it licenses are developed in a diligent manner.  In order to do this effectively, TDG tranches out various milestones between raising initial capital to filing an application with a regulatory agency (e.g., FDA) to getting a product sold in the marketplace, etc.  Without a diligence timeline, companies could potentially shelve the technology.  By including bright line diligence terms in its license agreements, TDG has the ability to take back technology by terminating the license agreement and to subsequently license it to another entity more able and willing to develop it.

Equity:  In lieu of some of the fees, and in order to allow start-up companies to invest most of their capital in development, UCLA TDG would otherwise require a licensee to pay in the early years of a license agreement (e.g., upfront fee), in the case of a start-up company TDG may accept a percentage of ownership in such company.  While this requires TDG to incur some risk (as the start-up company may not be successful), TDG increases the start-up licensee’s ability to get the technology developed as it is enabled to conserve its cash flow during its early years.

Patent Prosecution:  This term describes the interactions between the technology owner (here, the UC Regents) and the applicable patent office (in the U.S., known as the U.S. Patent and Trademark Office).  The goal when pursuing a patent through the patent office is to capture as much potential product scope as possible without negatively impacting the strength of the patent’s enforceability.  UCLA TDG often works in close collaboration with its licensee to determine the appropriate balance between patent scope and enforceability and, above all else, to ensure the resulting patent covers the licensee’s products.

Royalties: This term refers to the percentage payment TDG requires the licensee to pay on each product sold.  For example, if TDG requires a 2% royalty paid on the net sales of each product sold and the net sales on such product is $100, then the licensee must pay $2 to the UC Regents.  The inclusion of an “earned royalty” is fairly standard in patent license agreements as it enables the technology owner’s payment to be directly commensurate with the licensee’s commercial success.

What if the work was done in collaboration with someone at another research institution or company?

The invention may be jointly owned by UCLA and the other institution or company. Each inventor must disclose the invention to his or her home institution. TDG will work with the other institution or company to create an agreement that will determine who will take the lead in managing the invention.

Do I have to disclose inventions that I make in my spare time or under a consulting agreement?

Yes. All UCLA employees sign a Patent Acknowledgement Agreement that requires them to disclose any potentially patentable inventions, whether or not UC resources are utilized. If, however, the invention is created in your spare time, without using UC resources, and is outside of the scope of your employment, UCLA may relinquish rights to the invention. For more information on consulting, please go to http://tdg.ucla.edu/policies-forms

Can I share royalties with an individual who worked on the invention but is not an inventor?

Yes. If there is a person that you feel has contributed towards the development of an invention (but whose contribution does not rise to the level of inventorship) and you would like to reward them, you can designate a percentage of your royalties to be given to them. We have a letter agreement that the parties sign to memorialize this understanding.

Will UCLA file a patent even before a licensee has been identified?

Absolutely. Our goal is to file patents broadly and aggressively to protect UCLA inventions and maximize the possibility that these inventions will eventually be commercialized. UCLA will often make the investment to convert a provisional application to a full patent application before a licensee has been identified, especially when the technology appears promising as outlined below.

Why file a provisional patent application rather than a non-provisional patent application?

A provisional patent application is a very useful step in the patent process that has many benefits. Because a provisional application has fewer formal filing requirements than a non-provisional application, a provisional application allows an inventor to more quickly and easily obtain an effective filing date, while retaining the opportunity to supplement the provisional application over the year that follows with additional data that further supports the invention. A provisional application also has significantly reduced filing fees, when compared with a non-provisional application. Lastly, a provisional application does not start the clock in calculating the 20-year term of any issuing patent (the clock begins when the subsequent non-provisional is ultimately filed, effectively extending the patent term by an additional year).

How does TDG prioritize its resources for patenting and marketing of inventions?

Our office tries to actively patent and market all technologies that appear to have potential commercial value and are ready for marketing. There are several key factors that help determine this:

  • Does the technology have the potential to address an unmet commercial need?
  • Is the invention well-differentiated from competing solutions on the market or in development?
  • Are patent rights obtainable and enforceable?
  • Have clear technology development milestones been identified that would make the invention of interest to industry?
  • Is the inventor actively engaged in developing the technology?
  • Will having intellectual property protection facilitate the technology being commercially developed?
How are licensees found?

Studies have shown that 70% of licensees were known to the inventors. Thus research and consulting relationships that the inventors have are often a valuable source of potential licensees and we strongly encourage you to let us know about your industry contacts. Licensees are also identified through existing relationships within the TDG office. We continually attempt to broaden these relationships through various forms of networking and market research.

What role does TDG play in starting companies based on UCLA technologies?

While TDG cannot play any direct role in company formation, we seek to support company formation by providing introductions to potential investors, business mentors, and service providers (For more information please see http://tdg.ucla.edu/sites/default/files/06.27.17_UCLA%20

Entrepreneures%20FAQ.pdf ). We also seek to lower the hurdles for start- ups wanting to license technology by licensing in a phased approach that starts with a simple Letter of Intent (LOI).

Our Startup in a Box program was created to equip UCLA entrepreneurs with the tools they need to found and grow prosperous companies.  Current offerings are listed below and include pre-negotiated packages with local law firms and banks, with further partnerships to be added over time. (For more information and a link to the application please see http://tdg.ucla.edu/ucla-startup-box

The Startup in a Box program offers:

  • Legal services for entity formation
  • Commercial bank accounts
  • Mentorship
  • SBIR/STTR workshops
  • Pitch coaching
What if a company wants to know confidential information?

If a company is interested in obtaining more details about your invention for further evaluation, we can execute a Confidential Disclosure Agreement (CDA) to ensure that proprietary information remains confidential and that any information disclosed is not deemed to be a public disclosure for the purposes of patenting. To avoid risking your patent rights, always contact TDG before having any discussions with individuals outside of the UCLA community where you plan to disclose your invention.

 

How can I help the process?

Your active involvement can dramatically improve the chances of finding a licensee. Once interested companies are identified, the inventor is the best person to describe the details of the invention and its technical advantages. Typically companies are most interested in licensing technology where the inventor is invested in moving the technology toward commercialization.

What is a “letter of intent”?

A Letter of Intent (LOI) is a simple three-page agreement giving   the licensee a time-limited exclusive right to negotiate an option or license agreement.

What is an option agreement?

An option agreement provides a company the right to make and use (but not offer for sale or sell) the technology purely for internal research and evaluation purposes, with an option to enter into negotiations for a license for a fixed period of time.

What is a bailment agreement?

A bailment agreement is the transfer of tangible materials (for example a mouse model) for commercial purposes. Companies often pay fees or royalties for these materials.

Can there be more than one licensee for a single invention?

Yes, an invention can be licensed to multiple licensees, either non- exclusively to several companies, co-exclusively to a defined and limited number of companies, or exclusively to several companies, with each having a unique field-of-use or geography.

How are license terms determined?

License terms are tailored to the specifics of the technology, market and business plans of the licensee. General terms found in most licenses include an upfront license fee (cash or cash and equity), royalties, diligence terms, milestone/maintenance fees, indemnification, insurance and reimbursement of historical and ongoing patent costs.