Overview of Risk Management in University Technology Transfer

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Overview of Risk Management in University
Technology Transfer

• David N. Allen, Ph.D.
• Associate Vice President for Technology Transfer
• University of Colorado System
• david.allen_at_CU.edu
• 303 735 1688
• September, 2007

Knowledge
Innovation
Technology
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The Presentation Today

• Overview of technology transfer
• Elements of risk in technology transfer
• Risk management issues and approaches
• Conclusions and take home points

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(No Transcript)
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The Technology Transfer Process
Research (creation of the idea) Invention
disclosure (submitted to TTO) Intellectual
Property (IP) assessment (protection, technical
and commercial feasibility) IP protection
(initially a provisional patent application and
then further prosecution) Marketing and Proof of
Concept Option then License (to an Existing
Company or Start-Up Company) Product and Market
Development Commercial Sales (by
Licensee/Sublicensee) Revenue to CU (royalty,
milestone payments, equity liquidations) Revenue
distribution (inventors, their labs, Campus and
System)
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Technology Transfer Performance Metrics CU as an
Example

• Fiscal Year 02-3 03-4 04-5 05-6 06-7
• Invention disclosures 124 147 177 198 254
• Patent apps filed 82 100 139 125 140
• Options and licenses 34 47 59 57 75
• Exclusive option/licenses 13 19 22
  36 35
• Revenue in MM 3.1 5.8 21.7 20.6
  24.0
• Start-up companies 6 9 9 10
  10
• does not include revenue derived from legal
  settlements which in FY2003-4 amounted to 28.1M,
  
• in FY2004-5 6.7M, in FY 2005-6 .7M
• and .5M in 2006-7

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The Role of Technology Transfer Offices?

• Work with investigators to identify and assess IP
• Work with investigators to secure IP rights
  through research contracts, Material Transfer
  Agreements and related agreements
• Decide to protect, license, release to public or
  return IP to inventor
• Supervise obtaining legal protection, negotiate,
  execute and manage licenses and distribute net
  receipts inventor(s) named on a patent receive
  X of the revenue derived from the patent
• Conduct government compliance

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Universities Claim to IP Ownership

• Key Provision of 1980 Bayh-Dole Act university
  receives title to inventions created from
  research supported by federal funding
• Every university has an IP policy typical
  covered individuals
• Employees of university who create inventions
• Inventions derived fro a grant or contract
  obligation
• Inventions derived from substantial use of
  university resources
• Students often exempted (except as part of above)

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What Do Universities Want from Licensees?

• A true commitment to further develop and
  eventually commercialize the technology.
• An understanding of university values and
  constraints, e.g., publication and Bayh-Dole.
• A fair price, uncomplicated royalty terms and an
  opportunity to share in the upside.
• Reasonable terms for acquiring new IP.
• A role for the faculty inventor.
• To retrieve the IP if licensee doesnt produce.
• Reasonable mitigation of risks.

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Elements of Legal Risk in a License Agreement

• The basic proposition an arms length
  transaction exchanging rights for economic
  consideration
• Key elements of risk in a a license contract
• Issues with the grant of rights previous
  contractual obligations, exclusivity/non-exclusivi
  ty, field of use, patent rights, know-how, future
  rights
• Retained rights for government and research
• Payments earned royalties and sublicense
  royalties, annual and milestone fees,
• Patent administration and enforcement

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Elements of Government Regulatory Risk in Tech
Transfer

• The basic proposition government empowerment of
  IP comes with obligations to the government
• Key elements of regulatory risk
• Bayh-Dole reporting and other obligations
• Conflict of Interest (hens and fox analogy)
• Export control laws
• Open records laws
• Animal experimentation
• Human clinical trials

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Elements of Research Risk Impacting Tech Transfer

• The basic proposition research compliance is an
  academic affairs issue but impacts technology
  transfer
• The research environment risk
• Improper use of others IP (material transferred
  from industry)
• Inappropriate IP terms in Sponsored Research,
  Material Transfer and Confidentiality Agreements
• Agreements signed by faculty who do not have
  delegated authority
• Improper use of confidential and/or proprietary
  data
• Expropriation of IP (by employees and by
  companies)

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Elements of Intellectual Property Risk Impacting
Tech Transfer

• The basic proposition it takes five plus tears
  to be awarded a patent, by then the technology is
  often cold
• The IP risk environment
• Public disclosure of inventions
• Incorrect inventorship
• Complicated royalty distribution issues such as
  with different software creators over different
  versions of software
• Embedded third party software in university
  developed software

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Elements of Financial Risk in Tech Transfer

• The basic proposition payment for right to
  make, use, and sell IP
• Key elements of financial risk
• Patent infringement litigation
• Incomplete payment by licensee
• Timely and accurate office processing
• Form of equity and liquidation terms
• Payment for all inventors
• Funds to support litigation

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Risk Management Issues

• Basic legal protection inability of an injured
  party to pierce the license iron curtain
  liability between user and university
• The opportunity cost risk of missed technology
  commercialization
• The balance between transferring risk (control)
  to the licensee and accepting risk (control)
• The special risks of working with start-ups and
  small businesses
• Risk of working with known litigious companies

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Risk Management Features of a License

• Indemnification by licensee and not by university
• Very limited warranties and reps by university
• Commercial diligence defined
• Examination of licensee financial records (audit)
• Licensee insurance requirement
• License assignment approval
• Compliance with the law and choice of law
• Dispute resolution arrangements
• Contract termination

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Other Risk Management Approaches

• Fiscal responsibility reporting and assurances by
  TTO principal officer
• Fiscal control procedures
• Audits of large unusual transactions and yearly
  audits of affiliated entities
• Best practice monitoring and training to those
  practices
• Transparency of performance metric reporting and
  budgeting

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Conclusions and Take-home Points

• The relationship between the license and
  university is as important as the contract
• Competent tech transfer staff and best practice
  procedures are essential
• The relationship between the tech transfer office
  and university legal counsel must be positive
• Administration wants a proactive tech transfer
  function, which should be coupled with proactive
  academic compliance procedures
• The tech transfer office should not perform
  research compliance responsibility is disclosure
• There is no such thing as a prefect, risk free
  license