Demystifying the Technology Transfer Process

June 11, 2019
Contributed by: Huiyang Winnie Liang, PhD

For pharmaceutical and life science companies, establishing successful collaborations with academic labs goes beyond identifying the right principal investigator (PI) or technology. These companies must also strategically and effectively engage with technology transfer offices to establish sponsored research agreements and license the appropriate technology.

Interacting with Academic Labs

The desire to remain at the forefront of life science innovation is a key motivation for companies to work with academic labs. Maintaining a healthy relationship with academia by funding and supporting scientists not only facilitates companies’ basic research programs but also provides these businesses a front-row seat in identifying young talent. In addition, these collaborations provide access to specialized research equipment and facilities that often elude startups with modest financial means. For large companies, these collaborations provide a means to test emerging hypotheses, technologies, and strategies before investing heavily.

However, setting up these collaborations sometimes requires that both parties overcome potentially complex intellectual property (IP) issues. For example, issues over confidentiality, IP ownership, and potential conflicts of interest can all complicate any discussions between academic labs and private companies.

Such tension demands that both parties clearly communicate their priorities and find compromise. As Dr. Michael Hostetler, an intellectual property partner from Wilson Sonsini Goodrich & Rosati (WSGR), jokingly points out, “It is easy to demonize the other side, but you have got to understand why [the universities’ technology transfer offices] are taking that position. If you have that understanding, it makes a big difference.”  Even with constant communication, disagreements can still arise because of the unpredictable nature of scientific inquiry. No one knows exactly what the end results of a research study will be and how the data might impact IP agreements. In addition, one of the negotiating parties may jump the gun and try to place an unrealistic value on the yet-to-be-done research work and results. Such complications are easy to understand given the stakes – achieving favorable IP terms has important implications for a company’s business strategy, patent portfolio, and commercialization plan.  Amending an existing contract can be costly at best and game-ending at worst for startups. As a result, it is imperative for both the company and the collaborating PI to have a constructive open dialogue with the case managers at universities’ offices of technology licensing (OTL).

Industrial Contracts and Sponsored Research Projects

Industrial contracts (IC) are agreements an outside company establishes with OTLs to sponsor university research. These OTLs handle agreements spanning from multi-year master research collaborations to individual research projects as well as material transfer agreements.

The first step in establishing an industrial contract is to identify a PI with whom to work. This step is straightforward when the project is clearly established and the company has an idea of what additional work is needed. While this step is often self-initiated, some academic institutions have dedicated offices to help interested companies identify potential faculty partners.  For instance, UCSF’s Office of Strategic Alliances has a team of staff focused on industry partnerships, research scouting, and business development.

Companies should next involve the faculty member in the sponsored research agreement (SRA) process and maintain frequent communications to delineate the scope of the research program, overall cost, timing of payments, intellectual property ownership, licensing rights, publication review, termination, and liabilities. The more the researchers are involved in these discussions, the quicker the agreement can be reached. In the majority of cases, the details of the research plan, time frame and budget have been fully hashed out between the PI and the industry research team before a final agreement is submitted to the technology transfer offices. In those situations, the technology transfer officers simply conduct the final round of approvals and sign the necessary paperwork to make the SRA official.

A short checklist for the sponsoring company:

  • Identify potential PIs and research projects of mutual interest.
  • Discuss statement of work, length of project, material transfers, overall cost and timing of payments, intellectual property ownership and licensing rights, publication review, termination, and liabilities with the PI.
  • Consult your legal counsel and solicit their advice.
  • Consult the OTL team; in most cases, the sponsored projects office.
  • Keep the PI involved and on track in filing out and submitting all the necessary paperwork.
  • Most important of all, start early and communicate frequently with all parties involved.

Technology License Agreements

Companies can also license new technologies out of academic labs. There are three kinds of licensing agreements: (1) licenses to perform specific activities with the technology, (2) licenses to use all parts of the technology, and (3) licenses to create other devices compatible with the technology. Under these agreements, the licensee obtains the right to use, change, or resell a technological intellectual property that is currently owned by the licensor under a technology license (TL) agreement. In order for a TL agreement to be successful, the licensor in most instances chooses to work closely with the licensee as the technology is incorporated and adapted, thereby facilitating a smooth and efficient technology transfer. This course of action is especially true for early-stage licensed ideas, which may need further research and development from the inventors.

Licenses typically have at least these three monetary terms: (1) an initial non-refundable license issue fee due upon execution of the agreement, (2) a running royalty that is most commonly based on a percentage of sales and very much industry-dependent, and (3) minimum annual royalties, which are guaranteed payments to the inventor-licensor regardless of how well the product sells. In many cases, licenses also contain performance requirements for the licensee. These are mutually agreed upon technical and business milestones that reflect the licensee’s diligent progress toward the development of the technology. For large companies, instituting these additional terms is fairly standard and bears minimal financial burden on the licensees.  However, they are non-trivial for small startups with a tight budget. Thus, it is imperative that startup founders conduct due diligence on the terms of any license.

Dr. Hostetler from WGSR also cautions company leaders: “Many universities, when they license the technologies out, require that the companies meet certain milestones, [which are often] unrealistically set.” If the company does not meet those milestones, “they may be in breach of the agreement,” in which case “the university can terminate the agreement.” Companies should thus carefully set realistic milestones.

In addition, licenses can be totally exclusive, exclusive for a particular field of use or geographic region, or non-exclusive. In an exclusive license, the participating parties agree that no other person or legal entity can exploit the relevant Intellectual property rights (IPRs), thereby giving the licensing company the sole rights to use the IP during the length of their agreement.  On the other hand, a non-exclusive license grants the licensee the right to use the IPRs but on a non-exclusive basis. The licensor may thus set up IP agreements with other companies.  “Ultimately,” according to Dr. Ali Alemozafar, another IP partner from WSGR, “what the company would want to do, if IP is really of interest, is to work toward getting an exclusive license with a term that is set by the term of the last-to-expire patent.” Furthermore, picking the right geographical region in your license agreement can be important as well, depending on the company’s go-to-market strategy.

A short checklist for the licensing company:

  • Identify new technologies of interest.
  • Determine how to deploy the licensed technology. Start a new company? Add to existing product lines? Sublicense it to another legal entity?
  • Consult legal counsel on licensing terms.
  • Bring the technology licensing team onboard.
  • Most important of all, start early and communicate frequently with all parties involved.

IP Risks for Investments and Acquisitions

Any vagaries over IP rights are a risk factor that investors and potential acquirers need to evaluate before taking action. Vern Norviel, an IP partner at WSGR, provides one warning: “One thing that is routinely a worrisome point for venture capitalists is if a new patent is developed as a part of a collaborative effort, what is it going to cost? Frequently, the universities want it to be not set and to be discussed later. That makes acquirers, investors, and all of us very nervous, because [the price] could be quite unreasonable. With that said, the universities are usually reasonable, but the investors and partners have to worry what if this is the one in ten situations where they are not.”  Norviel highlighted the need for defined boundary conditions that dictate what the eventual IP assignment can or cannot be and the range of costs the universities can charge for patents coming out of sponsored research projects. Clearly delineating these terms makes it easier for the legal teams working on behalf of the investors and acquirers to assess a company.

Final Thoughts

Technologies coming out of the government and university labs are very early-stage.  In most cases, they require additional research and development that generally take years before they can be turned into commercial products. As a result, all parties involved must maintain constant communication, assess all their options, and consult legal counsel to properly assess all the terms of a deal.

Acknowledgements

The following individuals were consulted for this article:

  • Sally O’Neil (Director, Industrial Contracts Office, Stanford)
  • Lisa S Chen (Industrial Contracts Officer, Industrial Contracts Office, Stanford)
  • Peter Bluford (Technology Commercialization Associate for Biosciences and Climate & Ecosystem Sciences, LBNL)
  • Virginia de la Puente (Principal Licensing Associate for Biosciences and Earth & Environmental Sciences, LBNL)
  • Yuxi Lin (Alliance Manager, Office of Strategic Alliances, UCSF)
  • Ali Alemozafar (Intellectual Property Partner, Wilson Sonsini Goodrich & Rosati)
  • Michael Hostetler (Intellectual Property Partner, Wilson Sonsini Goodrich & Rosati)
  • Vern Norviel (Intellectual Property Partner, Wilson Sonsini Goodrich & Rosati)

Huiyang Winnie Liang, PhD is a Postdoctoral Scholar at Lawrence Berkeley National Lab

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