Resources for Faculty
University Technology Transfer-Questions and Answers
The following questions and answers are reproduced with permission from a 1996 copyrighted brochure by the Council on Governmental Relations (COGR) (www.cogr.edu/ ). The information is general in nature and provides useful perspective on university technology transfer practices nationwide. It does not, however, represent University of California policy and should not be interpreted as such.Part One
- What is the Bayh-Dole Act?
- Foreign licensing?
- Patents and publishing?
- Inventions in the Public Domain?
- Conflicts of interest?
- Joint Federal and industry participation?
- Different policies for Feds and industry?
- Committing Federally funded inventions to industry?
- How much do universities make on licensing?
- How do universities measure success in tech transfer?
- Why do universities retain title?
- Why link creation of knowledge to development?
- Why encourage faculty to invent?
This publication is intended for the private use of research administrators.
The National Research Administrator's Resources Network makes no warrants or representations as to the accuracy or reliability of any information contained herein, nor as to its applicability or usefulness.
This document, which poses and answers twenty questions, is intended to inform the public about technology transfer at U.S. research universities. The Q&A has a compendium piece, entitled The Bayh-Dole Act--A Guide to the Law and Implementing Regulations. Although each document fulfills its own purpose, they complement each other. When taken together they present a primer on the subject.
The Council on Government Relations is an organization which includes among its members over 135 research intensive universities. This booklet does not claim to be a manual of university technology transfer and licensing activities. Rather, it illustrates the philosophy and processes currently practiced in the university community.
In preparing the material, the COGR Subcommittee on Technology Transfer drew on the assistance of many COGR universities. Their help is gratefully acknowledged. Reproduction for purposes of sale or profit is prohibited without the written consent of the Council of Government Relations. Otherwise, reproduction is encouraged.
1. What is the Bayh-Dole Act, what prompted it, and why is it important to university technology transfer? Enactment of the Bayh-Dole Act (P.L. 96-517), the "Patent and Trademark Act Amendments of 1980" on December 12, 1980 created a uniform patent policy among the many federal agencies that fund research. Bayh-Dole enables small businesses and nonprofit organizations, including universities, to retain title materials and products they invent under federal funding. Amendments to the Act also created to inform licensing guidelines and expanded the law's purview to include all federally-funded contractors. (P.L.98-620)
Critical pressures prompted the Bayh-Dole Act in 1980. Congress perceived the need for reliable technology transfer mechanisms and for a uniform set of federal rules to make the process work. one major impetus for the bill was the lack of capability on the part of the federal government to transfer technologies for which it had assumed ownership. Hundreds of valuable patents were sitting unused on a shelf because the Government, which sponsored the research that led to the discovery, lacked the resources and links with industry needed for development and marketing of the inventions. Yet the government was unwilling to grant licenses to the private sector. The few federal agencies that could grant patent title to universities were overregulated with conflicting licensing and patenting policies. Technology transfer under those conditions was operationally prohibitive for universities and made them reluctant to enter the technology arena.
Since U.S. industry also was not inclined to brave government bureaucracy to license patents from universities or from the government, limited technology transfer was accomplished by the publishing of research results, training of students for the workforce and some extension programs established by the land-grant universities. The benefit to U.S. industry of such an unstructured process is undocumented and highly speculative.
The stability provided by the Act, its amendments and clear implementing regulations has spurred universities to become involved in transfer of technology from their laboratories to the marketplace. The ability to retain title to and license their inventions has been a healthy incentive for universities. Such incentive is needed, since participation in patent and licensing activities is time consuming for faculty, and must be done in addition to research and teaching priorities. The number of U.S. patents issued to universities has increased sharply since Bayh Dole was passed.
2. How has the Act influenced university technology transfer over the last decade and what are the results? Bayh-Dole gave universities control of their inventions. By placing few restrictions on the universities' licensing activities, Congress left the success or failure of patent licensing up to the institutions themselves. That foresight has been rewarded by skillful and committed university professionals who have shown that licensing embryonic inventions can be successful. The keys are inventors motivated to engage in the process and a licensing relationship built on partnerships with industry. This model is now emulated by the federal laboratories.
The success of Bayh-Dole in expediting the commercialization of federally funded university patents is reflected in the statistics. Prior to 1981, fewer than 250 patents were issued to universities per year. Slightly over a decade later, almost 1,600 were issued each year. Of those, nearly 80% stemmed from federally funded research. In addition, the number of universities participating in the patenting effort has increased to the point that in 1992, 200 universities had at least one patent issued annually.
Core technologies, likely to spark whole new industries, often result from university patents. This potential makes the contributions of the university sector to the national patent pool so significant. Examples range from the biotechnology to the laser industry. Stanford's Cohen-Boyer patent on basic gene splicing tools is at the heart of the entire biotechnology industry. The Axel patents, from Columbia University, provided a new process for inserting genes into mammalian cells to make protein. A host of new pharmaceutical products resulted from this invention.
The Atomic Force Microscope, invented at the University of California, Santa Barbara, is the most advanced atomic microscope in existence. The invention has not only significantly improved our ability to study the structure of molecules important biology and medicine; it also helps scientists comprehend the subtle details of physiological and chemical processes as they occur in real time.
The field of Magnetic Resonance Imaging, as we know it today, has its roots on research at the University of California, San Francisco. The University-developed technology was first disclosed in the mid 1970s. Later university work in this area and productive partnerships with industry have led to continual advancement in the field. Today, Magnetic Resonance Imaging is a staple in modern medical care.
University gross licensing revenues of approximately $200M in 1991 and $250M in 1992, are a striking indicator of how many university-owned patents have become marketplace products or are in the process of development by industrial companies. Bayh-Dole has enabled laboratory advances to become a significant factor in U.S. industrial growth.
3. How many research universities have technology transfer offices and what do they do?
It is not known exactly how many universities are engaged in technology transfer activities. One indicator is that over 230 U.S. universities and nonprofit research institutions are represented in the Association of University Technology Managers (AUTM). Among those universities that are active, one can observe a variety of structures and sizes. More significant than the structure of those offices, however, is their mission.
The mission of university technology transfer/licensing offices is to transfer research results to commercial application for public use and benefit. The office seeks and receives reports of inventions from investigators; reports the inventions to sponsors; decides whether to elect title for inventions developed with external funding; files patent applications; markets those patents to industry, negotiates and administers license agreements. The technology transfer office is also responsible for oversight of patent prosecution, recording of income and disbursements, and yearly reports to the government.
The major effort of the office is to find companies which have the capability, interest and resources to develop embryonic technologies into useful products. Once a match is found, a license agreement is negotiated to ensure that the company will be diligent in its efforts and will provide a fair financial return to the university's contribution to the return the company receives.
Technology transfer operations are generally also involved in negotiating material transfer agreements. Under such agreements, investigators share research materials (cells, cells lines, reagents, or other organisms) with colleagues in other universities or industry. Technology transfer experts also review the intellectual property terms in sponsored research agreements with industry (in some cases actually negotiating these agreements in conjunction with the university's Contract's and Grant's office.). Importantly, the professionals in the office are also a resource to the campus on a wide variety of intellectual property matters.
4. How does the university technology transfer work and what do universities license?
The major steps in technology transfer are: disclosure of inventions; record keeping and management; evaluation and marketing; patent prosecution; negotiation and drafting of license agreements; and management of active licences. University technology transfer in mainly a system of disclosure, patenting, licensing and enforcement of patents and licenses.
The disclosure document contains information about the invention, the inventors, the funding sources, anticipated bars and patenting (such as publications), and other data (such as likely candidates for licensing). The disclosure is reviewed by
the licensing staff or a university committee, who make a preliminary decision about ownership and the invention's potential commercial value and patentability. The technology transfer office takes action to insure that the newly disclosed intellectual property will be handled in compliance with the federal and university policies.
The next step is to seek an opinion on the patentability of the invention or to file a patent outright. the technology transfer office then markets the invention to industry. A nonconfidential summary is sent to companies that are likely to be interested. If a company expresses interest, it will be asked to sign a secrecy agreement (to protect patent rights) prior to receiving confidential information from the university. If the company continues to be interested after reviewing the confidential information, an agreement with the company is negotiated. This can be a letter of intent; an option; or a license.
In conjunction with any one of these options, a research agreement may be negotiated to continue to work on the invention at the university. Most university inventions are embryonic and require further research and development before they are ready for the market place. Thus, there is a high level of risk for the licensing--a fact that is taken into account in the licensing negotiation.
Technology transfer offices have many different "customers" with sometimes conflicting objectives. For instance, customers may consist of:
- a) the faculty--inventors, who often have expectations of research opportunities, income, public utilization and fame;
b) the private sector, expectations of securing commercially viable technology at a fair price;
c) the university administration, which expects the office to be self-supporting and wants to prevent conflicts of interest;
d) the governing board, which needs assurance that the university's name and reputation are protected in its industrial relationships;
e) the taxpayers, with expectations that the office will manage state and federal resources in an effective and nondiscriminatory manner; and
f) the sponsoring agency which insists on compliance with provisions of the Bayh-Dole Act.
In addition, the technology transfer office has the critical task of insuring that the missions of the university--education, research and service--are not compromised by the business interest emerging from the technology licensing function.
Return to Index 5. How is the licensing value (fees/royalties) of technologies determined, and how is that value protected? License fees and royalties are determined by arm's length negotiations between the licensor and licensee. fees and royalty rates are rarely large because most of the technology is in early stages and risky, thus requiring considerable investment to transform it into a marketable product. There are, however, a few technologies that have clear commercial applications and have large potential markets. In such cases, the university can negotiate larger fees and higher royalty rates. The deciding factors are: the type of technology, its stage of development, the size of the potential market, the profit margin for the anticipated product, the amount of perceived risk, the strength of the patents and the projected cost of bringing a product to market.
The marketing process itself sets the value of technology --how interested are the prospective licensees. Other factors that play a role are the estimated dollar value of the research which led to the discovery; the projected cost of development needed to complete the product; the scope of the license (exclusive vs. nonexclusive; US vs. worldwide; narrow vs. multiple fields of use, etc.) and royalty rates for similar products.
Beyond such general considerations, many universities seek to accomplish several basic goals in development of the package of considerations: a) the license should fund the patent application either through an up-front fee for reimbursement of costs already incurred by the university or through a requirement to reimbursement of ongoing expenses of the university; b) the license agreement should include ongoing considerations to the university (a royalty); c) required minimum annual royalties after a specified period of time regardless of actual sales; and d) performance milestones to assure that the university's technology enters the market. The "formula" hopefully assures that the technology is developed to completion and put in the stream of commerce, assures a fair return to the university, and assures that the technology is returned to the university should the licensee not pay the minimums or achieve the specified performance milestones.
Return to Index 6. What factors influence university decisions to license patents either exclusively or non-exclusively? University decisions on whether to license a patent only to one company or to a number of companies are based on several factors. However, universities are generally most influenced by two major determinants: (1) what kind of licensing is most likely to lead to rapid commercialization; and (2) what kind of licensing is in the public interest.
Patents which are broad in scope and can be used in multiple industries, or patents that they are so basic that they form the building blocks for new technologies are most likely to be licensed non-exclusively, or by fields of use. An exclusive, "field-of-use" license is a way to protect a market for a company while enabling the university to identify more than one license to assure public utilization of the technology in all markets.
Stanford University's Cohen-Boyer patent is an example of a basic patent that was licensed to all companies needing it. Non-exclusive licensing is preferred by universities when the technology can be used to foster product development in many fields of use. for example, if a technology will be of greatest benefit to the public if it becomes an industry standard, the university will make it readily accessible to all interested parties.
Universities most frequently will grant exclusive licenses to patents that require significant private investment to reach the marketplace or are so embryonic that exclusivity is necessary to induce the investment needed to determine utility. Frequently, these are new drugs requiring time-intensive and capital-intensive development or they are technologies that have only a tenuous link between the workbench and production. As such, they require a company willing to dedicate financial backing and the creativity of its own scientists on a long-range basis.
At the final call, the decision to license on an exclusive or non-exclusive basis is inevitably driven by market interest. Not only does the interest relate to the value of the invention, but also to the investment required to develop new products and the risk associated with that technology.
7. To whom do universities license and what role does the start-up company play in technology transfer? Universities license technology to a broad spectrum of organizations and individuals, ranging from the large for-profit corporation to a small non-profit research institution. For example, a license may be given to a multi-national pharmaceutical company for a new application of a known drug because that company may hold the patent on the compound. A non-exclusive license may be granted to a number of computer hardware and software firms to incrementally improve product lines. A royalty-fee license may be granted to another non-profit research institute to enable a researcher to practice the invention for research purposes. Included in these examples must also be a license to a early stage firm whose founding purpose was to commercialize the technology. While these kinds of licenses are probably riskiest in terms of eventual commercialization and subsequent payoff, those licensee companies are sometimes the most effective at transferring the technology for the public good.
Universities search for the licensee most capable of commercializing the technology. Examples of criteria used in identifying the licensee are: financial and technological resources; "fit" within the company business plans; previous experience, and marketing capabilities. Desire of the licensee the commercialize the technology and the relationship of the inventor to the licensee are also important. Commercialization of technology is not dependent only on intellectual property rights such as patents, but also on the ideas and know-how of the inventor. Therefore, the ability of the inventor to relate to the licensee is often a key factor in a license transaction.
When an entrepreneurial inventor is involved, the licenses may be a early stage company formed around the technology. These entrepreneurial ventures may bring with them a myriad of potential conflict of interest issues which must be resolved before a license is consummated. Nevertheless, they often are the most desirable because they have several of the key licensing components: desire by the licensee to make the product/technology a success, and involvement by the inventor in assuring success. One other factor in licensing to early stage companies is that these companies must compete for resources with other development projects.
8. Why is it not feasible to select licensees through a competitive bidding process? Most university-developed technology is "sold" rather than "bought". This means that considerable investment is required to present, persuade, and tailor specific arrangements to the needs of the licensee. Usually, the task is to find at least one capable and interested company, rather than choosing among several candidates. It is generally impossible to bring the interest of several prospects to a head at the same time, as would be required for a meaningful competitive bidding process. Also, tailoring to specific industry needs makes the competitive bidding useless. Yet, such tailoring is especially necessary in the case of small business firms to which universities are required to give preference for technology developed with federal funding.
Additionally, many universities are unable to afford the full expense of the patent application process. They therefore seek prospective licenses to cover such patenting expenses as part of a licensing agreement. The confidentiality required to prevent loss of rights in pre-filing negotiations makes competitive bidding difficult, especially when loss of patent rights through publication is imminent.
Normally universities contact several prospective licensees and pursue the most promising ones. Should there be more than one, universities will decide in favor of the one best able and diligent to develop the technology, not necessarily the one who will pay the most. Where time and circumstances permit, universities may showcase technology available for licensing, through publications, databases, and technology shows. More satisfactory results probably would not be achieved through a formal competitive bidding process. Because of the extra time and effort required in bidding, together with the inevitable reduction in flexibility, the result almost certainly would be fewer licenses and thus fewer university technologies being productively commercialized.